Sembcorp Marine (Sembmarine) said the impact of the pandemic has been protracted and could have serious consequences if it does not undertake its proposed $1.5 billion rights issue.
It cited the "prolonged and severe downturn" in the offshore and marine (O&M) industry since 2015 and the impact of the pandemic as reasons for the issue.
It noted that the reintroduction of Covid-19 measures this year, including tighter border controls, has disrupted supply chains and exacerbated the shortage of skilled manpower.
Although there have been no cancellations to any of the group's existing projects, delays have been extended and the risk of terminations has increased.
"The group has been coordinating with customers to reach outcomes of project rescheduling and deferment in payments," Sembmarine said, adding that deferral of cash collection will hit its near-term liquidity position.
Sembmarine noted that it had a net order book of $1.89 billion as at March 31, with most of the projects to be completed by the end of next year and cash collection to follow after.
Furthermore, the group foresees an increasing need to repay more debts upon their maturity over the next 18 months.
Sembmarine responded to queries about the sufficiency of its $2.1 billion rights issue last September by noting that $1.5 billion was used to set-off an earlier loan from Sembcorp Industries, with $300 million used for working capital.
"The remaining $300 million... is now insufficient," it said.
While the board considered other finance options, it settled on the equity rights issue as its fully committed nature meant stakeholders would be assured it will raise the $1.5 billion that it needs until at least the end of next year.
Other options considered were debt, equity-linked financing and/or other equity financing.
Debt financing, as suggested by the Securities Investors Association (Singapore), or Sias, was deemed unsuitable as challenging business conditions have pressured the group to refinance its maturing debt facilities, despite its net debt to equity ratio being at around 0.74 times.
The board found that obtaining additional debt financing from lenders is unlikely to be available or sufficient to meet Sembmarine's funding needs.
"Adding debt would also increase the pressure on cash flow through higher debt servicing needs," the group said.
Sias had earlier questioned if there would be a need for further fund raising after next year.
Sembmarine said it would depend on the O&M recovery, the continued impact of Covid-19 and its own business transition to the high-growth renewable and clean energy segment.
Specifically, the group's diversification into the renewable and clean energy sector is expected to diminish the impact of oil prices on its business in the long term.
SembMarine also referred to a Sias question on the consequences if shareholders reject the proposed rights issue.
It said the most immediate impact would be the group's inability to meet its liquidity requirements. It would then have to re-evaluate other financing options.
"In the absence of a recapitalisation, the group will face challenges to continue operating as a going concern," Sembmarine said.
Its shares closed down 8.8 per cent at 10.4 cents yesterday.
THE BUSINESS TIMES