Could it be the straw that broke the camel’s back? Since 2014, there were persistent rumours of Sembcorp Marine merging with Keppel Corp. But the rumours remain as rumours until now. With the explosive revelation of potential corruption charges and the recent meltdown of Sembcorp Marine share price, Temasek Holdings could be forced to show-hand.
Incidentally, Keppel Corp was involved in another merger and acquisition activity (M1) in 2018. That might have stalled the proposed deal between Sembcorp Marine and Keppel as substantial resources would have been expended to fund the exercise. But now that the M1 saga is over, it is timely to examine whether Keppel would make a move to rescue Sembcorp Marine share price. After all, both entities share the same parent company – Temasek Holdings.
The impetus for the merger came at a time when the oil-rig builder continued to struggle in the midst of a protracted slow-down in the oil and gas industry. For 1HFY2019, Sembcorp Marine reported losses of $8.77 million. To make matter worse, its subsidiary in Brazil, Estaleiro Jurong Aracruz Ltda (“EJA”), had been stormed by the Brazilian authorities in July 2019. A hefty fine, possibly up to a few hundred of million dollar, would virtually raze Sembcorp Marine share price to the ground.
But perhaps a more frightening news is that the management also warned investors that “the company is expecting the losses for the second half to be higher than the first half”. With this upfront disclosure, investors should anticipate a perfect storm for Sembcorp Marine share price in the coming months.
With a 5-year Beta of 1.38, Sembcorp Marine share price is surely very volatile. The question now is: should Sembcorp Marine be merged with Keppel or Sembcorp Industries? And what will be the impact to Sembcorp Marine share price from the perspective of an investor?
Catalyst for Sembcorp Marine share price
Apparently, the winter has lasted longer than expected. While oil price has recovered to a more sustainable level, global capital expenditure on offshore drilling remain extremely cautious. This resulted in the Group securing insufficient new orders in the last few quarters, causing Sembcorp Marine share price to be depressed along the way.
A merger would be the perfect catalyst to preserve Sembcorp Marine share price, which has collapsed to a record low since 2008. Temasek Holdings currently [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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