THE Securities Investors Association (Singapore), or Sias, said that Sembcorp Marine' s Sembcorp Marine: S51 -0.84% latest proposed rights issue has caused " great concern" among the company' s minority shareholders and has raised questions.

 

In a press statement released on Thursday, Sias said that the proposed rights issue came as a surprise to Sembmarine' s shareholders since the group' s CEO, Wong Weng Sun, had earlier expressed optimism in his H2 FY2020 results briefing in February earlier this year. Then, he said that the S$2.1 billion rights issuance in September 2020 had strengthened the company' s liquidity position and balance sheet.

 

On June 24 this year, Sembmarine announced that it was planning an additional fully committed, renounceable of up to 18.83 billion new shares on the basis of three new shares for every two existing shares held, at S$0.08 per share.

 

Noting that other offshore and marine (O& M) players have not gone through this rights issue, Sias questioned the necessity and criticality of this rights issue.

 

Sias also questioned the group' s basis for its rights issue price of S$0.08 per share and queried the total rights proceeds and utilisation of the S$1.5 billion raised.

 

Sias noted that the rights issue will represent a significant discount and dilution to minority shareholders, at a 35.7 per cent to the theoretical ex-rights price and a bigger 58.1 per cent discount to the counter' s close at S$0.191 on June 23.

 

Furthermore, Sias cited the group' s management as saying that the requirement for S$1.5 billion was " predicated on generally conservative assumptions" and asked if and under what circumstances would further fund-raising exercises be held after 2022. Sias also asked for the group' s assumption for oil prices up to end-2022.

 

Moving on to the group' s strategy and operations, the association said that the rights issuance could allow Sembmarine to fulfil existing commitments and win new projects, augment technological capabilities and maintain the group' s competitive edge and accelerate its pivot into high-growth renewable and clean energy segments.

 

Sias asked if it was accurate to suggest that the strengthening of Sembmarine' s financials through the rights issue is of the utmost importance and urgency at this juncture. The association further questioned when the group would actualise its reported order book size of S$1.89 billion to cash flows.

 

The association then called into question the need for the recently announced rights issue since Sembmarine had earlier disclosed in its financial statements for the year ended on March 31 this year that S$0.2 billion of the S$0.6 billion net proceeds from the earlier S$2.1 billion rights issue had already been used for working capital.

 

" It can thus be reasoned that the Group' s liquidity position and balance sheet would have been strengthened post the 2020 rights issue. Furthermore, one may expect the performance to improve on the back of improving economic fundamentals, and the successful cost-cutting measures undertaken by Sembmarine," Sias said.

 

As such, Sias asked for an update on Sembmarine' s financial position and operating conditions. The association also sought to understand the risks and potential risks that the group may face that may have given cause for the proposed rights issuance.

 

With Sembmarine' s net debt to equity ratio at 0.74 times, Sias questioned if Sembmarine had sought to raise funds through other means like it had done for the S$500 million the group previously raised through sustainability-linked financial facilities.

 

In relation to the protection of minority shareholders, Sias cited the tepid response to the earlier S$2.1 billion rights issue noting that only 18 per cent of the total rights issue had been taken up by minority shareholders.

 

The association then questioned if the group had evaluated why the response from them was as such, and if anything would be done differently with the latest proposed rights issue. Also, the association asked if the company would be taking any steps to protect the rights of minority shareholders.

 

While Sias understood that Sembmarine has clarified that net proceeds from the rights issue will not be used to fund the potential combination of Keppel O& M and Sembmarine, it further questioned if there would be any consequences if the latest rights issue were not approved by shareholders, and if this would have any impact on the potential merger of the two companies.