Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>After 14 months of Strategic Review and preparation for a Demerger of its generation and distribution businesses, the Board has <a href="https://www.asx.com.au/asxpdf/20220530/pdf/459fg181kqf4tl.pdf" target="_blank" rel="noopener">dropped the Demerger Proposal</a> in face of shareholder opposition.</li>
<li>While it isn't clear exactly how much opposition there was, Michael Cannon-Brookes held 11+% and General Meetings have garnered 50-75% of investors for a vote which needed 75% approval.</li>
<li>CEO and Chair have announced their resignations, two other board members will leave, and now the Board will start another strategic review using preparation at hand.</li>
</ul>


After 14 months of Strategic Review and preparation for a Demerger of its generation and distribution businesses, the Board has dropped the Demerger Proposal in face of shareholder opposition.
While it isn't clear exactly how much opposition there was, Michael Cannon-Brookes held 11+% and General Meetings have garnered 50-75% of investors for a vote which needed 75% approval.
CEO and Chair have announced their resignations, two other board members will leave, and now the Board will start another strategic review using preparation at hand.


AGL Drops Demerger Proposal - Back To Square Two

<ul>
<li>The Keppel O&amp;M / SMM Combination and Keppel Rig Asset Restructure were announced today and the arithmetic is both tough and interesting. There's a little magic here.</li>
<li>KEP shareholders receive SMM shares worth ~1/3 of today's share price, and the rest is currently valued at well under Net Tangible Assets post-Restructuring/Transaction.</li>
<li>That suggests Keppel has upside, but one must think carefully about the exposures.</li>
</ul>


The Keppel O&amp;M / SMM Combination and Keppel Rig Asset Restructure were announced today and the arithmetic is both tough and interesting. There's a little magic here.
KEP shareholders receive SMM shares worth ~1/3 of today's share price, and the rest is currently valued at well under Net Tangible Assets post-Restructuring/Transaction.
That suggests Keppel has upside, but one must think carefully about the exposures.


The Keppel Restructuring - Forward Sum Of The Parts Makes KEP Look Cheap. And It Is... But...

David Blennerhassett

<ul>
<li>
<a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Global (DIDI US)</a> had serious data problems. It still listed itself, against the wishes of the regulators. Then it got in serious hot water. And it's been getting hotter. </li>
<li>
<a href="https://www.smartkarma.com/entities/ramsay-health-care-ltd" target="_blank" data-smartkarma-citation="entities:673:1" rel="noopener">Ramsay Health Care (RHC AU)</a> announced an unsolicited, non-binding Offer from KKR (and HISTA), at A$88.00/share, a 36.7% premium to last close, however, earnings have been left bedridden by the pandemic.</li>
<li>Post-Deal, <a href="https://www.smartkarma.com/entities/keppel-corp-ltd" target="_blank" data-smartkarma-citation="entities:12:1" rel="noopener">Keppel Corp (KEP SP)</a> will look more like <a href="https://www.smartkarma.com/entities/sembcorp-industries-ltd" target="_blank" data-smartkarma-citation="entities:1087:1" rel="noopener">Sembcorp Industries (SCI SP)</a>. More engineering, less power generation infra assets, more other infra assets and more data centres. </li>
</ul>



DiDi Global (DIDI US) had serious data problems. It still listed itself, against the wishes of the regulators. Then it got in serious hot water. And it's been getting hotter. 

Ramsay Health Care (RHC AU) announced an unsolicited, non-binding Offer from KKR (and HISTA), at A$88.00/share, a 36.7% premium to last close, however, earnings have been left bedridden by the pandemic.
Post-Deal, Keppel Corp (KEP SP) will look more like Sembcorp Industries (SCI SP). More engineering, less power generation infra assets, more other infra assets and more data centres. 


Last Week in Event SPACE: Didi Global, Ramsay Health, Keppel Corp, Melco, Toshiba, Twitter

<ul>
<li>20 months ago, Temasek walked away from a deal to buy control of <a href="https://www.smartkarma.com/entities/keppel-corp-ltd" target="_blank" data-smartkarma-citation="entities:12:1" rel="noopener">Keppel Corp (KEP SP)</a> as the O&amp;M business saw large writedowns and covid stoppage losses.</li>
<li>The story? A possible Keppel O&amp;M and <a href="https://www.smartkarma.com/entities/sembcorp-marine-ltd" target="_blank" data-smartkarma-citation="entities:11:1" rel="noopener">Sembcorp Marine (SMM SP)</a> merger. SMM was recapped and spun out of <a href="https://www.smartkarma.com/entities/sembcorp-industries-ltd" target="_blank" data-smartkarma-citation="entities:1087:1" rel="noopener">Sembcorp Industries (SCI SP)</a> then recapped again. </li>
<li>Now it's crunch time. Keppel &amp; SMM hope to update investors on a merger plan by end of April. This insight looks at what to look out for.</li>
</ul>


20 months ago, Temasek walked away from a deal to buy control of Keppel Corp (KEP SP) as the O&amp;M business saw large writedowns and covid stoppage losses.
The story? A possible Keppel O&amp;M and Sembcorp Marine (SMM SP) merger. SMM was recapped and spun out of Sembcorp Industries (SCI SP) then recapped again. 
Now it's crunch time. Keppel &amp; SMM hope to update investors on a merger plan by end of April. This insight looks at what to look out for.


Keppel : Thinking About Keppel/SMM MergeCo and NEW KEPPEL Pro-Forma Opportunities

Two months ago, <a href="https://www.smartkarma.com/entities/sembcorp-marine-ltd" target="_blank" data-smartkarma-citation="entities:11:1" rel="noopener">Sembcorp Marine (SMM SP)</a> announced a Rights Offering to raise S$1.5bn to recapitalise operations and provide working capital for the 16 projects currently under execution, some of which have been hit by delays where payment was expected sooner and it will instead come later. 
The Rights Offering, coming on top of another Rights Offering and distribution of shares a year ago as the company was <s>cast away by</s> separated from its erstwhile parent <a href="https://www.smartkarma.com/entities/sembcorp-industries-ltd" target="_blank" data-smartkarma-citation="entities:1087:1" rel="noopener">Sembcorp Industries (SCI SP)</a> seemed to upset shareholders who did not understand why a second large offering in a year was needed. The simple answer was that last year, the net capital raise was minimal. It was primarily designed to generate proceeds to be able to pay back a large loan extended by its parent before the split. This year it is about survival.  
As I noted then, it was important to read the <a href="https://links.sgx.com/FileOpen/Trading%20and%20Liquidity%20Update.ashx?App=Announcement&amp;FileID=672231" target="_blank" rel="noopener">Trading and Liquidity Update</a>. The big points are:
<div>
<ol style="list-style-type: decimal;">
<li>Workers are scarce. Costs are up. There are supply constraints because of covid-19. Foreign workers who left can't come back. Relative Singapore success in fighting covid early on raised labor costs locally. It is tough to get new workers and new covid-19 measures introduced in May 2021 won't make it easier. </li>
<li>Projects are delayed. Cash Flows are delayed. In particular, the delivery of two drillships to Transocean has been deferred from FY21/22 to FY2023 and later, delaying S$610mm in cash flow.</li>
<li>The company needs to optimize cost structure</li>
<li>Group turnover this year has been lower than expected. </li>
<li>The group needs to raise money to get comfort on ability to complete existing contract base.</li>
<li>The company is pivoting to renewables and clean energy solutions.</li>
</ol>
The company needs money for all this. And a Rights Issue would provide certainty and immediacy.
The Securities Investors Association (Singapore), which has the general reputation of standing up to companies which do deals where retail investors are inconvenienced, came out with a press release with questions on <a href="https://sias.org.sg/latest-updates/press-statement-questions-to-sembcorp-marine-on-its-latest-proposed-rights-issue/" target="_blank" rel="noopener">15 July</a> which SMM answered on <a href="https://links.sgx.com/FileOpen/Announcement.ashx?App=Announcement&amp;FileID=675213" target="_blank" rel="noopener">19 July</a>.  The company got its Approval in Principle in early August from the SGX. SIAS sponsored a virtual dialogue on <a href="https://sias.org.sg/latest-updates/transcript-of-sias-sembcorp-marine-virtual-dialogue-6-august-2021/" target="_blank" rel="noopener">6 August</a>. There was an update on the <a href="https://links.sgx.com/1.0.0/corporate-announcements/JWHV82WCY953USMS/7bf07888e4783b9b297db68ce0cfac6a63afa1e381c0f244820b7f7d26feba8f" target="_blank" rel="noopener">18th of August</a> from the company, a further very late-in-the-day Q&amp;A published on <a href="https://links.sgx.com/FileOpen/Response%20to%20additional%20questions%20from%20shareholders.ashx?App=Announcement&amp;FileID=680896" target="_blank" rel="noopener">23 August</a> in the morning before the EGM, the EGM was held yesterday, the Rights Offering was approved, and...
...Today after the close, we have an announcement of the Rights Trading Period (31 Aug - 8 Sep), the Exercise Period (31 Aug - 14 Sep) and Pay Date (22 Sep) along with a re-delivery of all the documents from late June and early August (<a href="https://links.sgx.com/FileOpen/Launch%20Announcement.ashx?App=Announcement&amp;FileID=681089" target="_blank" rel="noopener">Announcement</a>, <a href="https://links.sgx.com/FileOpen/Media%20Release.ashx?App=Announcement&amp;FileID=681090" target="_blank" rel="noopener">Media Release</a>, <a href="https://links.sgx.com/FileOpen/Presentation.ashx?App=Announcement&amp;FileID=681091" target="_blank" rel="noopener">Presentation</a>, and <a href="https://links.sgx.com/FileOpen/Trading%20and%20Liquidity%20Update.ashx?App=Announcement&amp;FileID=681092" target="_blank" rel="noopener">Trading and Liquidity Update</a>).
24 August was the last day to trade WITH rights. 25 August is the first day to trade ex-rights.
There is strategy involved. 
Much more below the fold.
</div>

Two months ago, Sembcorp Marine (SMM SP) announced a Rights Offering to raise S$1.5bn to recapitalise operations and provide working capital for the 16 projects currently under execution, some of which have been hit by delays where payment was expected sooner and it will instead come later. 
The Rights Offering, coming on top of another Rights Offering and distribution of shares a year ago as the company was cast away by separated from its erstwhile parent Sembcorp Industries (SCI SP) seemed to upset shareholders who did not understand why a second large offering in a year was needed. The simple answer was that last year, the net capital raise was minimal. It was primarily designed to generate proceeds to be able to pay back a large loan extended by its parent before the split. This year it is about survival.  
As I noted then, it was important to read the Trading and Liquidity Update. The big points are:


Workers are scarce. Costs are up. There are supply constraints because of covid-19. Foreign workers who left can't come back. Relative Singapore success in fighting covid early on raised labor costs locally. It is tough to get new workers and new covid-19 measures introduced in May 2021 won't make it easier. 
Projects are delayed. Cash Flows are delayed. In particular, the delivery of two drillships to Transocean has been deferred from FY21/22 to FY2023 and later, delaying S$610mm in cash flow.
The company needs to optimize cost structure
Group turnover this year has been lower than expected. 
The group needs to raise money to get comfort on ability to complete existing contract base.
The company is pivoting to renewables and clean energy solutions.

The company needs money for all this. And a Rights Issue would provide certainty and immediacy.
The Securities Investors Association (Singapore), which has the general reputation of standing up to companies which do deals where retail investors are inconvenienced, came out with a press release with questions on 15 July which SMM answered on 19 July.  The company got its Approval in Principle in early August from the SGX. SIAS sponsored a virtual dialogue on 6 August. There was an update on the 18th of August from the company, a further very late-in-the-day Q&amp;A published on 23 August in the morning before the EGM, the EGM was held yesterday, the Rights Offering was approved, and...
...Today after the close, we have an announcement of the Rights Trading Period (31 Aug - 8 Sep), the Exercise Period (31 Aug - 14 Sep) and Pay Date (22 Sep) along with a re-delivery of all the documents from late June and early August (Announcement, Media Release, Presentation, and Trading and Liquidity Update).
24 August was the last day to trade WITH rights. 25 August is the first day to trade ex-rights.
There is strategy involved. 
Much more below the fold.


Sembcorp Marine Goes Ex-Rights - Strategy From Here

Singapore

Sembcorp Industries is a Singaporean state-owned energy and urban development company. It provides sustainable energy solutions, including renewable power (solar, wind, energy storage) and conventional energy (gas and related services), alongside integrated urban solutions such as industrial parks, water, and waste management. The company is headquartered in Singapore and was founded in 1998.

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Sembcorp Industries (SCI SP)

AGL Drops Demerger Proposal - Back To Square Two

AGL has dropped its Demerger proposal in the face of fears it wouldn't get 75% of a low-turnout vote. Chair + CEO have resigned on a forward basis....

Travis Lundy

The Keppel Restructuring - Forward Sum Of The Parts Makes KEP Look Cheap. And It Is... But...

Keppel and SMM announced a complicated restructuring package which gets KEP out of the rig business and delivers shares in SMM to its own...

Travis Lundy

Last Week in Event SPACE: Didi Global, Ramsay Health, Keppel Corp, Melco, Toshiba, Twitter

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Keppel : Thinking About Keppel/SMM MergeCo and NEW KEPPEL Pro-Forma Opportunities

Keppel Corp and Sembcorp Marine appear on their way to a deal to merge their O&M businesses. The backdrop is healthier now. And it means a...

Travis Lundy

Sembcorp Marine Goes Ex-Rights - Strategy From Here

Sembcorp Marine goes ex-rights on 25 August. The rights start trading on 31 August. There could be trades to do here for long-only investors, but...

Travis Lundy

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