Singapore’s Sembcorp Marine could go to the wall if its shareholders do not vote in favour of acquiring compatriot Keppel Offshore & Marine, Sembmarine has warned.
The circular issued ahead of the 16 February extraordinary general meeting when Sembmarine’s shareholders will vote on the proposed S$4.5 billion (US$3.44 billion) deal states that if the merger does not proceed there would be “no assurance that as a standalone entity, Sembmarine will continue to receive the necessary support from its banks, financiers and significant shareholders, which include [the Singapore government’s investment arm] Temasek”.
Sembmarine further cautioned that if it remains on its own, the company would likely have to contend with “an even more competitive landscape where many offshore players have sought consolidation or were otherwise challenged by the radically changed fundamentals of the business and needs of customers”.
Various other factors such as the pace of recovery in the offshore and marine sector, upward inflationary pressures and the continuing fallout from the coronavirus pandemic could also weigh on the contractor’s overall liquidity going forward if the acquisition falls through, Sembmarine admitted.
“The proposed combination will create a premier global player with a deep engineering heritage,” the contractor said in the circular, noting the long-term outlook of the offshore and marine sector is shifting amid the energy transition.
Further outlining the rationale behind its hoped-for acquisition, Sembmarine acknowledged the O&M sector has faced a prolonged and severe downturn since 2015, exacerbated by the rapid global transition towards renewables and clean energy, as well as significant disruptions during the Covid-19 pandemic.
Increased level of debt
“Amid this downturn, competition for a shrinking pool of projects has intensified, contributing to an increased level of debt across the industry and necessary equity issuances to strengthen financial positions.
“Additionally, many offshore players have sought consolidation to achieve the scale and synergies needed to become more competitive and build a sustainable order book,” the circular said.
If its shareholders do give the green light, Sembmarine will appoint a new board and the current Keppel O&M chief executive, Chris Ong, will take over as chief executive of the enlarged Sembmarine.
“Having successfully delivered all its key projects, built up a sizable net order book of more than S$7 billion, and with its strategic yard capabilities and technology bench strength, the company is well positioned for the new board to steward the enlarged group to greater heights,” the circular read.
With the exception of deputy chairman, Yap Chee Keong, the existing Sembmarine board will step down.
Industry veteran to retire
Wong Weng Sun, the company’s chief executive, who has led the company for 14 years, will remain as a senior advisor for an interim term to facilitate a smooth transition as Singapore's historically rival contractors join forces.
Wong, who joined Sembmarine in 1988, “has been instrumental in shaping the strategic thrusts of the company, initiating its significant transformation, building the company to its current stature and positioning it at the centre of the global shift towards a low-carbon economy”, commented Sembmarine.
The contractor’s shareholders have until 7 February to table any questions to the board and the company’s management ahead of the crucial vote.
The proposed S$4.5 billion deal will see Sembmarine acquire Keppel O&M — except its legacy drilling rigs — from parent Keppel Corporation.
The EGM will be held electronically “as a precautionary measure against any Covid-19 recurrence”, Sembmarine said.
