Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: Sembcorp, CK Hutch, Prosus/Naspers, Z Energy, Milton, China Logistics

Travis Lundy

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

Last Week in Event SPACE: Sembcorp, Milton, Toshiba, Dah Sing Bank, WH Group, 51job, Port Congestion

Equity Bottom-Up

Fifty four weeks ago, <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> 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> announced a gloriously messy recapitalization plan for sembcorp marine, and a de-merger between the two, discussed in <a href="https://www.smartkarma.com/insights/sembcorp-marine-and-sci-a-gloriously-messy-recap-and-de-merger-big-win-for-sci" target="_blank" data-smartkarma-citation="insights:40153" rel="noopener">SembCorp Marine and SCI - A Gloriously Messy Recap and De-Merger - Big Win for SCI</a>. sembcorp marine conducted a large rights offering to raise money to repay a subordinated loan that its then-parent had provided. Temasek backstopped the rights offering. Then SCI spun off SMM to its shareholders.This was, in effect, a transfer of indirect ownership of SMM by Temasek to direct ownership to Temasek.  SMM had been cast away, discussed in <a href="https://www.smartkarma.com/insights/sembcorp-marine-rights-offer-cast-away" target="_blank" data-smartkarma-citation="insights:40164" rel="noopener">Sembcorp Marine Rights Offer - Cast Away</a>. At the time, I said the only good trade was SCI. It has more than doubled since. SMM would have been a great short at the time, but there was almost no stock borrow. It fell, it has bounced back to close to its rights offering price of S$0.20/share. At the time, <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> was itself undergoing a possible partial tender offer by Temasek - also discussed heavily on Smartkarma <a href="https://www.smartkarma.com/entities/keppel-corp-ltd/insights" target="_blank" rel="noopener">here</a>. That deal ended up failing two months later because of a MAC on NAV triggered by a writedown. That writedown which lowered the NAV was in the rig/O&amp;M space. At the time, of last year's SMM rights offering, I wrote:<blockquote>The relatively common refrain on the Street (and indeed in my insights on the <a href="https://www.smartkarma.com/entities/keppel-corp-ltd" target="_blank" data-smartkarma-citation="entities:12:1" rel="noopener">Keppel Corp Ltd (KEP SP)</a> Partial Tender Offer) has been the thought that at some point, Temasek would need to sort out the two O&amp;M businesses because Singapore probably doesn't need two unhealthy majors under Temasek influence. An eventual merger between SCM and Keppel O&amp;M has clearly been in people's thoughts. </blockquote><h2>The NEW News</h2>Pre-open on the 24th of June, <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> and <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> were halted pending release of an announcement, which the news had later in the day as being a possible  merger between SMM and Keppel's O&amp;M business. Last night, sembcorp marine announced the <a href="https://links.sgx.com/FileOpen/Launch%20Announcement.ashx?App=Announcement&amp;FileID=672228" target="_blank" rel="noopener">launch</a> with a 20-page <a href="https://links.sgx.com/FileOpen/Presentation.ashx?App=Announcement&amp;FileID=672230" target="_blank" rel="noopener">presentation</a> extolling the virtues and necessity of the rights issue. This was accompanied by a <a href="https://links.sgx.com/FileOpen/Trading%20and%20Liquidity%20Update.ashx?App=Announcement&amp;FileID=672231" target="_blank" rel="noopener">Trading &amp; Liquidity Update</a> which discussed order delays, and difficulty in sourcing workers during the covid mitigation efforts in Singapore. The section on Liquidity and Cash Management tells it like it is.<blockquote>
The delays in construction progress and project completion have resulted in lower operating cash inflows. The deferred payment arrangements under the Transocean Amendment Agreements have also resulted in reduced cash collections in the near term. Conversely, project payables have increased due to the increased labour and other related costs to complete projects.
...
The Group will have to identify potential sources of capital to support and strengthen its liquidity and financial position.
</blockquote>sembcorp marine and Keppel Corp also <a href="https://www.sembmarine.com/stock-exchange-announcements/keppel-corporation-and-sembcorp-marine-commence-talks-on-potential-combination-of-keppel-om-and-sembcorp-marine-to-create-stronger-player-and-accelerate-pivot-to-the-energy-transition" target="_blank" rel="noopener">announced</a> they were to "Commence Talks on Potential Combination of Keppel O&amp;M and Sembcorp Marine, to Create Stronger Player and Accelerate Pivot to the Energy Transition."The "energy transition" concept has been prominent in the commentary from management from both companies. fossil fuel exploration drove the growth of SMM and Keppel O&amp;M. Now that is being replaced by cleaner energy sources both for green reasons and that it is cheaper. That means the support businesses differ. Keppel has installed large floating PV farms as part of its generation infrastructure business, and has looked at more offshore wind farms and the changing needs of OSVs for such renewable energy businesses. It clearly makes sense to pivot. However, that brief explanation of an MOU between the two companies to negotiate exclusively is DEFINITELY worth a read - mostly because of the non-business aspects.  The whole situation deserves some attention, but the trades are obvious.SMM is struggling. It needs cash. It will dilute existing holders via a 3:2 rights offering at S$0.08/share which will lead NTA to S$0.154 and TERP at S$0.1244. The offering is fully backstopped - two thirds by Temasek and one third by DBS - but I expect this to trade to TERP and lower. Borrow will be an issue.More below the fold.

Fifty four weeks ago, Sembcorp Industries (SCI SP) and Sembcorp Marine (SMM SP) announced a gloriously messy recapitalization plan for sembcorp marine, and a de-merger between the two, discussed in SembCorp Marine and SCI - A Gloriously Messy Recap and De-Merger - Big Win for SCI. sembcorp marine conducted a large rights offering to raise money to repay a subordinated loan that its then-parent had provided. Temasek backstopped the rights offering. Then SCI spun off SMM to its shareholders.This was, in effect, a transfer of indirect ownership of SMM by Temasek to direct ownership to Temasek.  SMM had been cast away, discussed in Sembcorp Marine Rights Offer - Cast Away. At the time, I said the only good trade was SCI. It has more than doubled since. SMM would have been a great short at the time, but there was almost no stock borrow. It fell, it has bounced back to close to its rights offering price of S$0.20/share. At the time, Keppel Corp (KEP SP) was itself undergoing a possible partial tender offer by Temasek - also discussed heavily on Smartkarma here. That deal ended up failing two months later because of a MAC on NAV triggered by a writedown. That writedown which lowered the NAV was in the rig/O&amp;M space. At the time, of last year's SMM rights offering, I wrote:The relatively common refrain on the Street (and indeed in my insights on the Keppel Corp Ltd (KEP SP) Partial Tender Offer) has been the thought that at some point, Temasek would need to sort out the two O&amp;M businesses because Singapore probably doesn't need two unhealthy majors under Temasek influence. An eventual merger between SCM and Keppel O&amp;M has clearly been in people's thoughts. The NEW NewsPre-open on the 24th of June, Sembcorp Marine (SMM SP) and Keppel Corp (KEP SP) were halted pending release of an announcement, which the news had later in the day as being a possible  merger between SMM and Keppel's O&amp;M business. Last night, sembcorp marine announced the launch with a 20-page presentation extolling the virtues and necessity of the rights issue. This was accompanied by a Trading &amp; Liquidity Update which discussed order delays, and difficulty in sourcing workers during the covid mitigation efforts in Singapore. The section on Liquidity and Cash Management tells it like it is.
The delays in construction progress and project completion have resulted in lower operating cash inflows. The deferred payment arrangements under the Transocean Amendment Agreements have also resulted in reduced cash collections in the near term. Conversely, project payables have increased due to the increased labour and other related costs to complete projects.
...
The Group will have to identify potential sources of capital to support and strengthen its liquidity and financial position.
sembcorp marine and Keppel Corp also announced they were to "Commence Talks on Potential Combination of Keppel O&amp;M and Sembcorp Marine, to Create Stronger Player and Accelerate Pivot to the Energy Transition."The "energy transition" concept has been prominent in the commentary from management from both companies. fossil fuel exploration drove the growth of SMM and Keppel O&amp;M. Now that is being replaced by cleaner energy sources both for green reasons and that it is cheaper. That means the support businesses differ. Keppel has installed large floating PV farms as part of its generation infrastructure business, and has looked at more offshore wind farms and the changing needs of OSVs for such renewable energy businesses. It clearly makes sense to pivot. However, that brief explanation of an MOU between the two companies to negotiate exclusively is DEFINITELY worth a read - mostly because of the non-business aspects.  The whole situation deserves some attention, but the trades are obvious.SMM is struggling. It needs cash. It will dilute existing holders via a 3:2 rights offering at S$0.08/share which will lead NTA to S$0.154 and TERP at S$0.1244. The offering is fully backstopped - two thirds by Temasek and one third by DBS - but I expect this to trade to TERP and lower. Borrow will be an issue.More below the fold. 

Sembcorp Marine Bites the Bullet - Big Rights Offering - And May Combine with Keppel O&M

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Less that a year after a massive rights issue, <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> has announced a big rights issue to strengthen its financial position and accelerate its pivot towards renewable and clean energy.The recapitalisation will be done via a 3:2 renounceable rights issue at a price of S$0.08/share, representing a 58.12% discount to the last close and a 35.69% discount to the Theoretical Ex-Rights Price (TERP).Temasek (via Startree Investments) has committed to subscribe to its 42.6% entitlement and will underwrite part of the excess rights so that its total subscription will not exceed 67% of the rights issue. <a href="https://www.smartkarma.com/entities/dbs-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:22:1" rel="noopener">DBS (DBS SP)</a> is underwriting the remaining 33% of the rights issue.<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> and <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> have also commenced talks on a potential combination of Keppel O&amp;M and SMM to create a stronger player and to accelerate the pivot to energy transition.We expect <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> shares to open lower and possibly trade lower in the near-term. The stock trades at high valuations and shareholders looking at the longer term price charts have a right to be wary.<h3>Links</h3><table class="table table-striped"><tbody>
<tr>
<td style="width: 50%;">Detail</td>
<td style="width: 50%;">Link</td>
</tr>
<tr>
<td style="width: 50%;">SMM SP Press Release</td>
<td style="width: 50%;"><a href="https://links.sgx.com/FileOpen/Press%20Release.ashx?App=Announcement&amp;FileID=672241" target="_blank" rel="noopener">Link</a></td>
</tr>
<tr>
<td style="width: 50%;">SMM SP Announcement</td>
<td style="width: 50%;"><a href="https://links.sgx.com/FileOpen/Launch%20Announcement.ashx?App=Announcement&amp;FileID=672228" target="_blank" rel="noopener">Link</a></td>
</tr>
<tr>
<td style="width: 50%;">SMM SP Media Release</td>
<td style="width: 50%;"><a href="https://links.sgx.com/FileOpen/Media%20Release.ashx?App=Announcement&amp;FileID=672229" target="_blank" rel="noopener">Link</a></td>
</tr>
<tr>
<td style="width: 50%;">SMM SP Presentation</td>
<td style="width: 50%;"><a href="https://links.sgx.com/FileOpen/Presentation.ashx?App=Announcement&amp;FileID=672230" target="_blank" rel="noopener">Link</a></td>
</tr>
<tr>
<td style="width: 50%;">SMM SP Trading &amp; Liquidity Update</td>
<td style="width: 50%;"><a href="https://links.sgx.com/FileOpen/Trading%20and%20Liquidity%20Update.ashx?App=Announcement&amp;FileID=672231" target="_blank" rel="noopener">Link</a></td>
</tr>
<tr>
<td style="width: 50%;">KEP SP Media Release</td>
<td style="width: 50%;"><a href="https://links.sgx.com/FileOpen/MREL_KCL%20Announcement%20-%2024%20Jun%202021.ashx?App=Announcement&amp;FileID=672253" target="_blank" rel="noopener">Link</a></td>
</tr>
<tr>
<td style="width: 50%;">KEP SP Media &amp; Analyst Briefing</td>
<td style="width: 50%;"><a href="https://links.sgx.com/FileOpen/TRSCR_%20KCL%20Briefing%20to%20Media%20and%20Analysts%20-Transcript.ashx?App=Announcement&amp;FileID=672341" target="_blank" rel="noopener">Link</a></td>
</tr>
</tbody></table>

Less that a year after a massive rights issue, Sembcorp Marine (SMM SP) has announced a big rights issue to strengthen its financial position and accelerate its pivot towards renewable and clean energy.The recapitalisation will be done via a 3:2 renounceable rights issue at a price of S$0.08/share, representing a 58.12% discount to the last close and a 35.69% discount to the Theoretical Ex-Rights Price (TERP).Temasek (via Startree Investments) has committed to subscribe to its 42.6% entitlement and will underwrite part of the excess rights so that its total subscription will not exceed 67% of the rights issue. DBS (DBS SP) is underwriting the remaining 33% of the rights issue.Sembcorp Marine (SMM SP) and Keppel Corp (KEP SP) have also commenced talks on a potential combination of Keppel O&amp;M and SMM to create a stronger player and to accelerate the pivot to energy transition.We expect Sembcorp Marine (SMM SP) shares to open lower and possibly trade lower in the near-term. The stock trades at high valuations and shareholders looking at the longer term price charts have a right to be wary.Links

Detail
Link


SMM SP Press Release
Link


SMM SP Announcement
Link


SMM SP Media Release
Link


SMM SP Presentation
Link


SMM SP Trading &amp; Liquidity Update
Link


KEP SP Media Release
Link


KEP SP Media &amp; Analyst Briefing
Link



Sembcorp Marine: BIG Rights Issue & Potential Combination with Keppel O&M

Singapore

Seatrium Ltd offers engineering solutions for the offshore, marine, and energy industries. The Company provides rigs and floaters, repairs and upgrades, offshore platforms, and specialized shipbuilding. Seatrium serves customers worldwide.

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Seatrium (STM SP)

Last Week in Event SPACE: Sembcorp, CK Hutch, Prosus/Naspers, Z Energy, Milton, China Logistics

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

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

Last Week in Event SPACE: Sembcorp, Milton, Toshiba, Dah Sing Bank, WH Group, 51job, Port Congestion

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

Sembcorp Marine Bites the Bullet - Big Rights Offering - And May Combine with Keppel O&M

SMM did a disastrous rights offering last year - an equity/debt swap. Now they do a REAL ONE to raise more money. There is nothing good here near...

Travis Lundy

Sembcorp Marine: BIG Rights Issue & Potential Combination with Keppel O&M

A big rights issue of S$1.5bn from SMM SP could see the stock trade lower. A potential merger with Keppel O&M could provide a bright spot....

Brian Freitas

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