Sembcorp Marine share price (SGX: S51) in $500 million mystery

LIFETIME MEMBERSHIP It turns out that the mandatory offer by Temasek Holdings is a “non-event” for Sembcorp Marine share price (SGX: S51). Following the controversial $1.5 billion rights issue, Temasek Holdings’ stake in Sembcorp Marine increased to 46.6%. Consequently, this triggered the mandatory general offer in accordance with Rule 14 of the Singapore Code on Takeovers and Mergers. True to its words, the offer price from Temasek Holdings remains at $0.08 per share. Given that the current Sembcorp Marine share price (SGX: S51) is higher than the offer price, the chance of privatisation is extremely remote.

There has been so many twists and turns for Sembcorp Marine share price (SGX: S51) that investors must feel like the past two years had been a terrifying nightmare. Question now is when will this nightmare end? Will there ever be light at end of tunnel for Sembcorp Marine share price (SGX: S51)?

The next baptism of fire for Sembcorp Marine share price (SGX: S51) should be the upcoming proposed merger with Keppel Offshore and Marine (KOM). As part of the deal, Sembcorp Marine and KOM will combine to form a new listed entity. The newly listed stock would provide an opportunity to “reset” the ailing Sembcorp Marine share price (SGX: S51). Nonetheless, a lot would depend on the valuation by the investment bank working on the merger. And then there is no guarantee that the merger will even take place as the MoU is not binding.

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At the centre of the controversy must be the $500 million that Keppel Corp stands to receive if the deal goes through. And what could be the impact on Sembcorp Marine share price (SGX: S51)? Before we discuss on this matter, let’s examine what would be plausible outcome for Sembcorp Marine share price (SGX: S51) in the context of Temasek’s mandatory general offer.

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 (SGX: S51) 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 (SGX: S51) in the Game of Death

First of all, as Temasek Holdings’ stake is below 50% prior to the offer, the offer shall be conditional. As such, the Minimum Acceptance Condition (MAC) is 50%. For Temasek Holdings to privatize Sembcorp Marine, the sovereign wealth fund must have at least 90% stake so that it will have the mandate to buy over the remaining 10% from dissenting shareholders. Given that current Sembcorp Marine share price (SGX: S51) in the market is higher than the offer price from Temasek, it does not make sense to me that shareholders would tender their shares to Temasek instead of selling to the open market. In this regard, it would really take a miracle for Temasek Holdings’ stake to fly from the current 46.6% to 90%. Hence, the chance of privatizing Sembcorp Marine is extremely remote for this counter in my humble opinion.

Second scenario is that Temasek Holdings obtained slightly more than 50% stake after the offer closed. If this happened, then Temasek is obligated to make good its offer to those who tendered their shares. Again, the possibility of such scenario is low as the current Sembcorp Marine share price (SGX: S51) is higher than the offer price. The coming days will be crucial. If Sembcorp Marine share price (SGX: S51) drops to below $0.08 for some unknown reasons, then there could be shareholders who may opt to tender their shares to Temasek in a bid to cut losses. But as long as the 90% threshold is not reached, Temasek Holdings will not need to make a compulsory shares acquisition.

The last scenario is that Temasek Holdings’ stake remains below 50% after the offer lapsed. If so, then Temasek Holdings will return the shares of those who tendered their shares during the offer period. In my view, this is the most plausible outcome. There are many long-term investors who are still harbouring hopes of a recovery in Sembcorp Marine share price (SGX: S51), so I do not think that they will throw in the towel so easily. Indeed, the proposed merger with KOM offers much hope to long-time investors and it is also the only viable way for SMM to fight its way out of this mess. Standing in its way is the $500 million cash that would be offered to Keppel Corp.

Biggest clue on the source of $500 million

It appears to me that the $500 million would have to come from [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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