Sembcorp Marine share price in final fantasy with Temasek Holdings

Since my last article on this counter, Sembcorp Marine share price rose from the grave to reach a high of $1.40 in recent days. The spectacular form of Sembcorp Marine share price was surely a welcome sight for investors. This is because this counter had been on a trashy form since its subsidiary in Brazil, Estaleiro Jurong Aracruz Ltda (“EJA”), had been stormed by the Brazilian authorities in early July 2019. The raid was in relation to a corruption probe, nicknamed “Operation Car Wash”.

Needless to say, the market went into overdrive after the announcement of the stunning partial offer by Temasek Holdings for Keppel shares. There were plenty of speculations that a merger between Keppel and Sembcorp Marine is finally on the cards. As a result, Sembcorp Marine share price is on fire.

Sembcorp Marine share price

But is it really the beginning of a much-anticipated recovery for Sembcorp Marine share price? Or yet another false dawn for investors? After all, the pre-conditions to the partial offer seem quite onerous to the extent that it seems like Temasek Holdings is buying an insurance for the deal.

One of the pre-conditions set by Temasek Holdings is that there must be no material adverse change to Keppel’s financial performance following the announcement for the next 12 months. This includes not having “a decrease of NAV of the Group by 10% or more”. And not having “a decrease of 20% or more from the cumulative profit after tax of the Group for the 12 months ended 30 September 2019 of $696 million”. With such pre-conditions for the partial offer, it is too premature to claim that the merger is a foregone conclusion. So expect much volatility for Sembcorp Marine share price in the next 12 months.

On the other hand, investors must be wary that current surge in Sembcorp Marine share price could be a value trap amid the on-going corruption probe of Sembcorp Marine’s subsidiary by Brazilian authorities. Whilst Keppel could easily afford the hefty fines, the same could not be said for Sembcorp Marine.

Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in this counter before. Whether Sembcorp Marine share price surge or collapse will have no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.


Sembcorp Marine share price at cross-roads

In the past, both Keppel and Sembcorp Marine shares movements used to be directly correlated to the movement of the crude oil price. However, the emergence of US shale oil changed the market dynamic. Within 5 years, US had tipped the balance and is challenging Russia and Middle East as leading net exporter of oil. The change in supply and demand for the oil market had led to the oil slump started in 2014, resulting in major oil companies like Chevron and Shell holding back capital expenditure for new oil rigs.

Henceforth, the ailing Sembcorp Marine share price is wholly [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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