Sembmarine defends virtual EGM, management performance after Sias queries

SINGAPORE – Sembcorp Marine on Saturday responded to queries from the Securities Investors Association (Singapore), or Sias, ahead of

a crucial vote this week by its shareholders

on its proposed acquisition of Keppel Offshore & Marine (Keppel O&M).

Among other things,

Sias had questioned

if Sembmarine’s board had “critically reviewed” the performance of its management in the past two to five years. Particularly, Sias wanted to know if the management can navigate the competitive landscape of the industry as a standalone entity.

Sias noted that all but one of Sembmarine’s directors have indicated they would leave the board if the acquisition is successful. Sias also queried Sembmarine about the board’s composition post-acquisition.

Sembmarine said it reviews its management performance regularly. Since the start of the industry downturn in 2015 and the more recent Covid-19 pandemic, Sembmarine said, its board has worked more closely with the management to navigate challenges.

While several key projects were delayed and not profitable, the board said it recognises that the management “did its utmost to achieve project completions with no project cancellations”.

The company said the management has successfully secured a pipeline of new projects worth about $7 billion in 2022.

It also set out the rationale for the board reconstitution, saying that the company is now “well positioned” for the proposed board to steward the enlarged group.

“The enlarged group will further accelerate the strategic transition into offshore renewables, new energy and cleaner O&M solutions. This will require new perspectives and competencies at the board level and across the organisation,” it added.

Should shareholders approve the proposed merger, Sembmarine said it would have to weigh the “pros and cons of continuity versus change at the board level”. It would be an “opportune time” for the board to be reconstituted, it added.

Sembmarine deputy chairman Yap Chee Keong will be a member of the proposed board, while chief executive Wong Weng Sun will be a senior adviser.

Sias had asked Sembmarine about the “safeguards” in place to ensure that all relevant questions during the extraordinary general meeting (EGM) are answered before the vote. The EGM will be held at 11am on Thursday virtually only.

Sembmarine said the virtual EGM “is in line with the guidelines” set by government agencies at the time the circular was issued. The company added that “several options” were considered, but a key consideration was the “large number” of shareholders.

Sembmarine’s chairman, who will also chair the EGM, will ensure that “all relevant and substantive questions” are answered before the resolution is put to a vote, said the company.

Sias had also asked Sembmarine about the goodwill that will be created on the back of the proposed combination, and the risk of any impairments in the near future.

Sembmarine said the actual amount can be determined only after a purchase price allocation exercise is completed. The possible impairment of goodwill in future years will depend on the future performance of the enlarged group, and Sembmarine said it is unable to provide any forecasts on this.

“As for risks and expected benefits, this can cut both ways in all transactions. If the synergies from the proposed combination are achieved, the expected benefits could potentially outweigh the risks,” said Sembmarine.

But if certain risks – ones that have been flagged by Sembmarine in its circular – do materialise, this could have a “material and adverse impact on the enlarged group”, Sembmarine warned.

Sembmarine had also defended the approach of its independent financial adviser (IFA) after Sias asked how robust the IFA’s opinion was given that it had disregarded the net asset value approach.

Sias also noted that the IFA was “seller-appointed”, and used a price-to-net-asset value comparison of comparable companies.

Sembmarine said the IFA had outlined its methodology in evaluating the transaction – taking into account factors such as the assessment of the consideration for the restructured Keppel O&M group, assessment of the issue price for the group’s consideration shares, and the dilution impact on existing Sembmarine shareholders.

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