Singapore offshore and marine giant Sembcorp Marine (Sembmarine) has launched a rights issue as it battles market challenges wrought by the coronavirus pandemic.
Sembmarine, which is in negotiations with city neighbour Keppel Corporation over a combination with Keppel's offshore and marine division, said it aims to raise S$1.5 billion (US$1.1 billion) through a fully committed, renounceable rights issue of up to 18.8 million new shares.
The issue would be based on three new shares for every two existing shares held.
Startree Investments, a wholly owned subsidiary of major shareholder Temasek, has committed to subscribing for its pro-rata 42.6% entitlement and excess rights, meaning its total subscription will be up to 67% of the rights issue.
DBS Bank is underwriting the remaining 33% of the issue.
Sembmarine chief executive Wong Weng Sun said: “Since the last rights issue completed in September 2020, our operations have been severely impacted by the continuing Covid-19 disruptions."
"The liquidity from the proposed (rights issue) will be vital in fortifying our financial position. It will ensure we emerge from this crisis as a strong and innovative player, with an increasing strategic focus on clean, sustainable and renewable energy solutions.”
The company requires shareholders’ approval at a special meeting in August 2021.
Disruptions to yard operations caused by Covid-19 had impacted the execution and completion of projects, along with deferrals of deliveries and payments by customers. This had created a short-term but significant draw on the company's working capital position, said Sembmarine.
An earlier rights issue in September 2020 had strengthened its financial position, and the proceeds were used to reduce leverage and debt servicing obligations by converting a S$1.5 billion subordinated loan owing to Sembcorp Industries into equity in Sembmarine with the balance of S$600 million to fund ongoing operations.
However, the prolonged disruptions from Covid-19 had created near-term challenges for the company.
The rights issue will strengthen the company's balance sheet, address its working capital depletion and replenish liquidity in order to meet the projected operational funding requirements through to the end of 2022.
Meanwhile, regarding the potential combination with Keppel Offshore & Marine, Sembmarine chief executive Sun said: “Our industry is undergoing rapid change and becoming increasingly complex as a result of the accelerated pace of transition to a green economy."
"In this current landscape, we recognise that there could be significant benefits to explore a potential combination. We are proud of the talent that has been built in Sembcorp Marine over the years, and while the potential combination will require examination of the future development of our workforce, we are committed to addressing these matters by consulting our labour representatives closely during the discussions as we work to achieve the synergies required."