Sembmarine uses last $160m of cash proceeds from 2020 rights issue

Sembcorp Marine (Sembmarine) has fully utilised the last $160 million of $600 million in cash proceeds raised from its $2.1 billion rights issue last year, it said in a Singapore Exchange filing yesterday.

Of the cash raised, $66 million was used to pay for subcontractors' labour services, while $58 million was deployed as payment for materials and equipment. The outstanding $36 million was used as payment for employees' payroll expenses.

Sembmarine still has $1.5 billion in its coffers from a rights issue proposed in June, which will alleviate pressure on its balance sheet and help it through the pandemic until the end of next year, analysts said.

The second rights exercise closed last Friday with valid acceptances for 15.9 billion or 84.2 per cent of the rights shares on offer. Excess applications were made for 6.3 billion rights shares, or 33.5 per cent of the total rights shares available.

In all, the company received total subscriptions for 22.17 billion shares, compared with the rights offering of 18.83 billion shares.

The money raised will help Sembmarine complete 17 delayed projects and enhance its liquidity position to meet operational funding requirements until next year.

While analysts believe the worst is over for Sembmarine, some say it will take another four years for the company to turn a profit.

UBS analyst Cheryl Lee said in a report yesterday: "The pace of (project) awards may not be strong enough to materially lift margins and we project a return to the black only in 2025."

Based on her calculations, Sembmarine will require revenues of about $2 billion to $2.5 billion to break even.

At end-June, the company's net order book had fallen to $1.8 billion, with just $400 million worth of orders secured this year.

Ms Lee said that even though it is bidding for around 20 jobs in the offshore and marine sector, Sembmarine has "little control over the pace at which these tenders are awarded", adding that competition remains intense in the industry.

That said, further restructuring is likely in the future as Sembmarine and shipyard peer Keppel Offshore & Marine progress with merger discussions.

"We think this could unlock revenue and cost synergies, and should be beneficial to both parties," Ms Lee said.

Sembmarine and Keppel have been discussing since June a merger intended to create a combined entity that is better positioned to compete for contracts in offshore renewable energy.

This comes amid an extended period of low oil prices and disruptions such as manpower shortages and reductions in demand for rigs by oil majors.

Sembmarine closed yesterday at 8.5 cents a share, up 3.7 per cent. At those levels, the stock trades at a discount to its Asian peers. This could be explained by its weaker revenue visibility and sluggish order momentum, said Ms Lee.

The analyst has thus cut her earnings forecasts for the next two years and given the stock a price target of 8.5 cents, unchanged from its close yesterday.

A version of this article appeared in the print edition of The Straits Times on September 22, 2021, with the headline 'Sembmarine uses last $160m of cash proceeds from 2020 rights issue'. Subscribe