WE were taken aback by Ben Paul' s article " Is Sembmarine' s rights issue to position it for a cash-depleting merger with Keppel O& M?" , where he incorrectly suggested that the transaction benefits Temasek at the expense of minority shareholders of Sembcorp Marine (Sembmarine).

 

This is largely because he linked Sembmarine' s S$1.5 billion rights issue with the potential combination between Sembmarine and Keppel O& M.

 

The 2021 rights issue of Sembmarine and potential combination between Sembmarine and Keppel are two independent transactions.

 

In the 2021 rights issue, Sembmarine reaffirmed that the recapitalisation was needed to strengthen its balance sheet and to enhance its liquidity position resulting from the severe impact of Covid-19. This will better position it to bid for larger projects and accelerate its pivot into the fast-growing renewable and clean-energy segment. The 2021 rights issue is subject to the approval of Sembmarine' s shareholders, and is independent of the outcome of the discussions on the potential combination.

 

Temasek views this 2021 rights issue to be in the best interests of Sembmarine. Temasek also has an interest in catalysing transition to a carbon-neutral world. Thus, we have undertaken to subscribe for our pro-rata entitlements to the 2021 rights issue, plus excess rights not taken up by other shareholders, up to 67 per cent of the 2021 rights issue in aggregate.

 

DBS has separately underwritten the remaining 33 per cent. This means Sembmarine will have certainty that it can raise the full S$1.5 billion it requires.

 

This is different from the transactions last year, where there was a proposal to demerge Sembmarine from its parent, Sembcorp Industries, along with a rights issue by Sembmarine that injected S$600 million of working capital, and retired a S$1.5 billion loan from its parent.

 

The vast majority of shareholders of both companies voted for the transactions at their respective extraordinary general meetings in August 2020. Temasek, too, saw the 2020 rights issue as being in the best interest of Sembmarine, and its demerger from Sembcorp Industries, as being in the best interests of both companies.

 

Temasek became a 42.6 per cent shareholder in Sembmarine after the resulting demerger from Sembcorp Industries. We received a proportionate share of Sembmarine shares, like other Sembcorp Industries shareholders. In addition, we acquired 8.2 per cent of Sembmarine through the rights issue at S$0.20 per share - the same price paid by every other subscriber.

 

As Sembmarine and Keppel have announced, discussions about their potential combination are at a very preliminary stage. If there is a definitive agreement on this, shareholders of both companies will then be asked to consider and vote on it separately.

 

As outlined by Keppel and Sembmarine on their discussions, it is the combined entity that would pay the consideration of up to S$500 million to Keppel from the combined asset base of Keppel O& M and Sembmarine, not just SembMarine' s, should the potential combination be approved. It is not correct to say that the proposed 2021 rights issue is to provide those funds to pay Keppel.

 

In short, the upcoming 2021 rights issue and potential combination are independent transactions, which will be separately and independently subject to shareholder votes. It is improper to suggest that these are part of a corporate exercise to benefit Temasek at the expense of minority shareholders of Sembmarine.

WE refer to The Business Times article " Is Sembmarine' s rights issue to position it for a cash-depleting merger with Keppel O& M?" written by Ben Paul and published on July 5, 2021, and would like to provide some clarifications to your readers.

 

On June 24, we made two announcements. The first announcement relates to a rights issue aimed at addressing the company' s immediate funding needs and strengthening its financial position to accelerate our expansion into the renewable and clean energy space.

 

The second announcement relates to a non-binding memorandum of understanding that we have signed with Keppel Corporation to explore the potential combination of Sembcorp Marine and Keppel Offshore & Marine (Keppel O& M).

 

Your article states that " the rights issue will probably also position Sembmarine for a potentially cash-depleting merger with Keppel O& M" . These two announcements are independent of each other. The rights issue will address a critical funding need that will see us through till end 2022. A potential combination addresses a longer-term goal to better position Sembcorp Marine to compete and thrive on a global stage in the new energy sector.

 

We would like to emphasise that the entire amount to be raised from the rights issue will be used for our working capital and general corporate purposes, including debt servicing. For the avoidance of doubt, the net proceeds from the rights issue will not be used to fund any payment in relation to the potential combination.

 

We are fully mindful that the proposal to raise S$1.5 billion through a fully committed, renounceable rights issue comes after an earlier S$2.1 billion rights issue in September last year. However, this new rights issue is critical as our operations have been severely impacted by the continuing Covid-19 disruptions. Given the challenges, it is vital that we strengthen our balance sheet once again, and enhance liquidity to meet projected operational funding needs, including replenishing our working capital.

 

We hope that our shareholders will understand that this proposed rights issue is needed to preserve longer-term shareholder value.

 

On the potential combination with Keppel O& M, while there were no conversations about this in August 2020, the board and management are of the view that there could be significant benefits for our shareholders in exploring the potential combination. We would also emphasise that discussions are at a preliminary stage and there is no certainty that the potential combination will take place. If an agreement is reached, a separate extraordinary general meeting will be held to seek shareholders' approval.

 

We are thankful for our shareholders' understanding over the years, and we look forward to their continued support.

 

Thank you for the opportunity to provide this clarification.