SINGAPORE (THE BUSINESS TIMES) - The Securities Investors Association (Singapore), or Sias, says that Sembcorp Marine's (Sembmarine) latest proposed rights issue is causing "great concern" among the company's minority shareholders and has raised questions about it.

In a press statement released on Thursday (July 15), Sias said that the proposed $1.5 billion rights issue came as a surprise to Sembmarine's shareholders since the group's chief executive, Mr Wong Weng Sun, had in February expressed optimism in his results briefing for the second half of financial year 2020.

He had said then that the $2.1 billion rights issuance in September 2020 had strengthened the company's liquidity position and balance sheet.

On June 24 this year, Sembmarine announced that it was planning an additional fully committed, renounceable rights issue of up to 18.83 billion new shares on the basis of three new shares for every two existing shares held, at eight cents per share.

Noting that other offshore and marine (O&M) players have not gone through this rights issue, Sias questioned the necessity and criticality of this rights issue.

Sias also questioned the group's basis for its rights issue price of eight cents per share and queried the total rights proceeds and utilisation of the $1.5 billion raised.

Sias noted that the rights issue will represent a significant discount and dilution to minority shareholders, at 35.7 per cent to the theoretical ex-rights price and a bigger 58.1 per cent discount to the counter's close at 19.1 cents on June 23.

Furthermore, Sias cited the group's management as saying that the requirement for $1.5 billion was "predicated on generally conservative assumptions" and asked if and under what circumstances would further fund-raising exercises be held after 2022. Sias also asked for the group's assumption for oil prices up to end-2022.

Moving on to the group's strategy and operations, the association said that the rights issuance could allow Sembmarine to fulfil existing commitments and win new projects, augment technological capabilities, maintain the group's competitive edge and accelerate its pivot into high-growth renewable and clean energy segments.

Nevertheless, Sias asked if it was accurate to suggest that the strengthening of Sembmarine's financials through the rights issue is of the utmost importance and urgency at this juncture. The association further questioned when the group would actualise its reported order book size of $1.89 billion to cash flows.

The association then called into question the need for the recently announced rights issue since Sembmarine had earlier disclosed in its financial statements for the year ended March 31, 2021, that $0.2 billion of the $0.6 billion in net proceeds from the earlier $2.1 billion rights issue had already been used for working capital.

"It can thus be reasoned that the group's liquidity position and balance sheet would have been strengthened post the 2020 rights issue. Furthermore, one may expect the performance to improve on the back of improving economic fundamentals, and the successful cost-cutting measures undertaken by Sembmarine," Sias said.

Therefore, it asked for an update on Sembmarine's financial position and operating conditions.

The association also sought to understand the risks that the group may face, which may have given cause for the proposed rights issuance.

With Sembmarine's net debt to equity ratio at 0.74 times, Sias questioned if the group had sought to raise funds through other means, like it had done for the $500 million previously raised through sustainability-linked financial facilities.

In relation to the protection of minority shareholders, Sias cited the tepid response to the earlier $2.1 billion rights issue, noting that only 18 per cent of the total rights issue had been taken up by minority shareholders.

The association then questioned if the group had evaluated the response from them, and if anything would be done differently with the latest proposed rights issue. Also, the association asked if the company would be taking any steps to protect the rights of minority shareholders.

While Sias understood that Sembmarine has clarified that the net proceeds from the rights issue will not be used to fund the potential merger of Keppel O&M and Sembmarine, it further questioned if there would be any consequences if the latest rights issue did not get shareholder approval, and if this would have any impact on the merger.

Shares of Sembmarine traded flat at 11.9 cents as at 3.35pm on Thursday.