SembMarine surges on talk of going private

Sembcorp Marine shares surged 7.5 per cent yesterday amid the rebound in oil prices and continued speculation that the company could be taken private.
Sembcorp Marine shares surged 7.5 per cent yesterday amid the rebound in oil prices and continued speculation that the company could be taken private. PHOTO: SEMBCORP MARINE

Shares up 11 cents or 7.5% to highest in a month; rise also follows rally in oil prices

Sembcorp Marine shares surged 7.5 per cent yesterday amid the rebound in oil prices and continued speculation that the company could be taken private.

The counter rose through the day to close 11 cents up at $1.57, its highest in about a month, and a sharp reversal of fortunes after a shaky start to the trading day.

The rebound came a day after the world's second-largest rigbuilder posted its first quarterly loss since it first reported data 12 years ago.

SembMarine announced a net loss of $536.9 million for the three months to Dec 31, as it took impairment charges and provisions of $609 million - more than half related to projects for debt-laden client Sete Brasil. The company, hit hard by the oil price plunge, has also reduced its headcount by 17 per cent, or between 3,000 and 4,000 staff, through natural attrition, redeployment and the removal of less efficient subcontractors.

A SembMarine spokesman told The Straits Times yesterday that the axed workers were mostly foreign nationals employed by subcontractor companies. He added that the number of Singaporeans involved was "very small".

SembMarine's share price jump yesterday was likely helped by the rally in oil prices, said KGI Fraser Securities research analyst Joel Ng. Crude climbed to around US$34 (S$48) a barrel, a sharp departure from the US$30 last week.

There were also market rumours that Temasek Holdings, which owns 49.5 per cent of parent company Sembcorp Industries, could take SembMarine private.

"Being privatised may give the company more leeway to find new avenues of growth and eventually re-list in public markets in the next oil market up-cycle," said Mr Ng, adding that the move would help investors cut losses as well.

He noted the market has already priced in the losses in recent weeks - another possible reason for the rebound in SembMarine shares, down by 10.3 per cent this year.

The stock has slumped 45.8 per cent over the past year, far worse than the 20.1 per cent decline in the Straits Times Index over the same period.

Maybank Kim Eng analyst Yeak Chee Keong said in a report that SembMarine is at risk of further markdowns "if market conditions deteriorate further, leading to more contract cancellations or lower asset prices".

More surprising was the company's spike in net gearing, from 0.64 times during the third quarter to one times by the end of the year, he noted, maintaining a "sell" call on the stock with a 12-month target price of $1.

The higher number indicates that the firm has taken on proportionally more debt.

An OCBC Investment Research report honed in on SembMarine's high debt levels as well, noting that its net gearing was a far cry from the net cash position it had held in the second quarter of 2014.

SembMarine generated $989 million of operating cash outflow in in the fiscal year 2015 due to higher working capital needs. But president and chief executive Wong Weng Sun said the firm expects to see a reduction this year as its working capital needs have "peaked".

RHB analyst Lee Yue Jer maintains a "neutral" call on the stock with a target price of $1.33.

A version of this article appeared in the print edition of The Straits Times on February 17, 2016, with the headline 'SembMarine surges on talk of going private'. Print Edition | Subscribe