The offshore and marine industry is facing “unprecedented times”, Singapore’s Sembcorp Marine said on Monday as it responded to additional comments and questions from shareholders regarding its proposed merger with restructured Keppel Offshore & Marine. .
“The O&M sector has faced a prolonged and severe downturn since 2015, exacerbated by the rapid global transition to renewables and clean energy, as well as significant disruptions during the Covid-19 pandemic,” Sembmarine said.
“As oil prices have risen in recent months and conditions in the O&M sector improve, the long-term outlook for the O&M sector will continue to evolve as part of the energy transition.”
The agreement contemplates an internal restructuring of Sembmarine whereby all shareholders will transfer all of their existing Sembmarine shares to the combined entity on a one-for-one basis. Upon completion of the Sembcorp Marine Scheme, Sembcorp Marine will become a wholly owned subsidiary of the combined entity.
This entity would then merge with the restructured Keppel O&M, which will also eventually become a wholly owned subsidiary of the combined entity.
Reiterating the rationale for the proposed merger, Sembmarine said on Monday that since 2015 it has embarked on a strategic journey of business transformation.
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The contractor added that it has also strengthened its core engineering capabilities and aligned its research and development programs in key verticals of offshore renewables, new energy and cleaner O&M solutions.
“Over the past few years, we have also made strategic investments and acquisitions to better position and align our business to meet changing market demands. The proposed combination is a major development in this journey of transformation.
“While the market potential is enormous, the need for a larger and more robust platform to take advantage of these opportunities cannot be overstated. Sembmarine is ready to take a bold step to further increase the depth and extent of its engineering and operational capabilities through the proposed combination.
“[This] offers us the best path forward to play a long-term role in meeting the changing needs of our O&M customers, who themselves need new, cleaner energy solutions.
Sembmarine highlighted a potential immediate benefit of the announced merger – the optimization of its larger and newer yards in Singapore and Brazil for the combined entity’s expanded order book, which should translate into financial and operational benefits. .
“Specifically, the restructured Keppel O&M brings a net order book of S$5.1 billion (US$3.66 billion), which would add to Sembcorp’s net order book of S$1.3 billion. Marine. Gearing for the combined entity on a pro forma basis is also below 22% compared to 33% for Sembmarine on a stand-alone basis,” the company added.
Radically changed fundamentals
Sembmarine said if it were to continue to fly solo “it would have to navigate an even more competitive landscape where many offshore players have sought to consolidate or have been challenged by radically changed business fundamentals and customer needs”.
Responding to questions from shareholders about why Keppel O&M’s related companies, Keppel Floatel International and Dyna-Mac, are being excluded from the proposed merger, Sembmarine noted that these two contractors were loss-making in 2019 and 2020 and were judged ” incongruous” in relation to the proposed merger. case – as were the legacy platforms from Keppel O&M.
Sembmarine also sought to explain to its shareholders the logic of its rights issues in 2020 and last year, describing them as “preventive exercises to strengthen the group’s balance sheet in difficult market conditions”, in particular with the company. posting net losses of S$583. million and S$1.175 billion in the 2020 and 2021 financial years respectively.
“The prolonged Covid-19 disruptions have created short-term challenges for the group and the remaining proceeds from the 2020 rights issue have been deemed insufficient for the group to weather the industry downturn and the stresses and impacts of the supply chain caused by the pandemic.
“Further recapitalization via the 2021 rights issue was essential to further strengthen our balance sheet, address the temporary depletion of working capital and rebuild liquidity to meet projected operational funding needs through the end of 2022.”
The balance of approximately S$720 million from last year’s rights issue is to be used for general corporate purposes, including working capital.
Weighing on global liquidity
“[However]the challenging and competitive global operating environment, coupled with further upward pressure on inflation, is expected to weigh on the group’s overall liquidity,” Sembmarine warned on Monday.
Sembmarine’s extraordinary general shareholders’ meeting to vote on the proposed combination with Keppel O&M is expected to be convened in the fourth quarter of 2022.