Sembcorp Marine share price faces takeover offer

LIFETIME MEMBERSHIP It is a battle that Sembcorp Marine can ill-afford to lose. On 24 June, the announcement of the bombshell $1.5 billion rights issue led Sembcorp Marine share price to yet another dark chapter. Over the course of two weeks, Sembcorp Marine share price plunged by a staggering of nearly 35%. Given that the latest rights issue price is at an abysmal $0.08, it is reasonable to expect Sembcorp Marine to continue its disastrous run in the coming weeks.

The sentiments for Sembcorp Marine share price are so toxic that not even the news of the merger with Keppel Offshore Marine (KOM) can halt the stock slump. The news of the $230 million contract win from Brazilian shipyard, for modification work to be completed on the Floating Production Storage and Offloading (FPSO) P-71 oil and gas vessel, had temporarily provided some respite for the siege on Sembcorp Marine share price.

Nonetheless, the contract win is not going to move the needle for Sembcorp Marine as the oil-rig builder has revealed that the root cause for its current crisis is not the lack of revenue from new contract wins. Rather, COVID-19 has caused the deferral of deliveries and payments by existing customers. This issue had resulted in a significant draw on the Group’s working capital position. For this reason, the management had no choice but to make a cash call to shareholders, causing Sembcorp Marine share price to plunge into a devastating quicksand.

Despite the massive chaos, it is certainly not the end of the road for Sembcorp Marine share price. This is because the rights issue had triggered a mandatory takeover offer under Monetary Authority of Singapore (MAS) Takeovers and Mergers Code. Under Rule 14:

Mandatory offers are triggered, except with the Council’s consent, where:-

(a) any person acquires whether by a series of transactions over a period of time or not, shares which (taken together with shares held or acquired by persons acting in concert with him) carry 30% or more of the voting rights of a company; or

(b) any person who, together with persons acting in concert with him, holds not less than 30% but not more than 50% of the voting rights and such person, or any person acting in concert with him, acquires in any period of 6 months additional shares carrying more than 1% of the voting rights,

such person must extend offers immediately, on the basis set out in this Rule, to the holders of any class of share capital of the company which carries votes and in which such person, or persons acting in concert with him, hold shares. In addition to such person, each of the principal members of the group of persons acting in concert with him may, according to the circumstances of the case, have the obligation to extend an offer.

Given that Temasek Holdings’ current stake in Sembcorp Marine amounts to 43%, the sovereign wealth fund is obligated under Rule 14(b) to make a general offer to the rest of the stakeholders immediately upon the completion of the rights issue. The offer must also be conditional. Question now is: what would be the offer price that Temasek Holdings would make, and how would it affect Sembcorp Marine share price in the coming months? In this article, I will share my analysis of the unfolding saga for Sembcorp Marine share price.

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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. I am not vested in Sembcorp Marine at the moment. Whether Sembcorp Marine share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.

Sembcorp Marine share price faces roller coaster ride

For sure, the coming weeks will be baptism of fire for Sembcorp Marine share price as the counter will be subjected to huge volatility. Then again, it is possible for investors to make money out of the volatility. The key is to be very clear of the chain of events. Based on historical trends, Sembcorp Marine share price plummeted to a low of $0.110 following last year’s rights issue. The 2020 rights issue was priced at $0.20. Given that the latest rights issue is priced at $0.08, it is reasonable to expect Sembcorp Marine share price to crash to a low of $0.05.

However, Sembcorp Marine share price is unlikely to remain at such depressed levels because the rights issue will trigger the mandatory takeover offer. In addition, the key reason for Temasek Holdings buying Sembcorp Marine shares in recent days could be to fulfil the minimum takeover offer price requirement.

According to the Code, the minimum offer price should be “the highest of the highest price paid by the offeror and its concert parties for outright purchase of shares in the offeree company within 6 months of the offer and during the offer period”. To meet this requirement, the takeover offer price from Temasek Holdings should be [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.]