SINGAPORE - Temasek Holdings has agreed to support a $2.1 billion rights issue by loss-making Sembcorp Marine (SembMarine), which will also be "demerged" from its parent Sembcorp Industries (SCI).
The rescue plan announced on Monday (June 8) by SCI and SembMarine entails a five-for-one renounceable rights issue at an issue price of 20 cents per share.
SCI, which owns 61 per cent of SembMarine, will subscribe for up to $1.5 billion of rights shares by setting off a $1.5 billion subordinated loan it extended to its subsidiary in June last year.
Temasek, SCI's biggest shareholder with a 49.3 per cent stake, has agreed to sub-underwrite the remaining $600 million.
The two companies have proposed demerging via a distribution of SCI's stake in the recapitalised SembMarine to SCI shareholders as dividends after the rights issue.
SCI shareholders will receive between 427 and 491 SembMarine shares for every 100 SCI shares owned, with no cash outlay required.
SembMarine chief executive Wong Weng Sun said: "This recapitalisation will improve our cash position, fund ongoing financial commitments, strengthen our balance sheet and ensure long-term viability."
SembMarine needs new skill sets as it moves from offshore oil and gas engineering business to focus more on offshore renewable engineering products and solutions, he added.
The company is slated to fabricate jacket foundations for the 376MW Formosa 2 wind farm in Taiwan and two offshore substation topsides for the 1.4GW Hornsea 2 wind farm off east England.
Mr Neil McGregor, SCI group president and CEO, said: "We believe that the proposed demerger will unlock shareholder value by transforming Sembcorp Industries into a focused business that can compete and capture growth opportunities in the energy and urban sectors.
"In addition, our shareholders will also receive value in the form of shares in a stronger recapitalised Sembcorp Marine."
Upon completion of both proposed transactions, Temasek will become a direct shareholder of SembMarine, with a stake of 29.9 per cent to 58 per cent, depending on final subscription levels.
The announcement came after shares in SembMarine and SCI were halted from trading last Thursday, prompting speculation among some analysts about a potential deal between the two firms.
KGI Securities analyst Joel Ng said: "It's just the next step in Singapore's long-overdue consolidation of the offshore and marine sector.
"The end result is that Temasek will eventually be the biggest direct shareholder of Sembcorp Marine."
Last year, Temasek offered to buy control of conglomerate Keppel Corp, whose businesses include rig-building, in a $4.1 billion deal.
SCI and SembMarine will be seeking their respective shareholders' approval for the rights issue and proposed distribution at extraordinary general meetings (EGMs), which are expected to be convened around end-August to early September.
The rights issue is also conditional on SembMarine shareholders passing a resolution to waive their rights to receive a general offer from Temasek and its concert parties in connection with the proposed distribution. A 30 per cent stake or higher would otherwise trigger a mandatory offer for SembMarine shares.
The proposed distribution and rights issue will proceed only if shareholder approvals are received for all resolutions at both companies' EGMs.
While SCI will continue to focus on its core areas of energy and urban development, the proposed deal will help SembMarine ride through the prolonged downturn in the offshore and marine industry, the companies said.
Doubly hit by the Covid-19 pandemic and recent collapse in oil prices, the rig builder sank to a net loss of $137 million last year, worse than the $74 million loss in 2018.
"We recognise these are difficult times and the companies are operating in an uncertain and volatile world," said Mr Nagi Hamiyeh, Temasek's joint head, investment group, and head of portfolio development.
"However, we will work actively with the boards and management teams of both companies as they address these current challenges, and with an eye to the future, as they identify pathways for long-term growth," he said.