Sembmarine in recovery mode but as a smaller entity
Once as blue (a chip) as the oceans where its rigs, floaters and platforms operated on, Sembcorp Marine (Sembmarine) is now worth a few cents per share because of two rights issues in 2020 and 2021 which raised a total of $3.6 billion due to the collapse in oil prices and its Brazilian contracts.
In the years leading up to 2014 and 2015, Singapore was the world’s largest rig builder — only to be overtaken by the Chinese yards as the years wore on. Now, just as Sembmarine is recovering on the back of higher oil and gas prices, it is losing its identity as an independent standalone company.
In a business update, Sembmarine announced that its cash flow and liquidity management have improved following the completion and deliveries of several projects in 1QFY2022 ended March. As a result, the group’s net debt/equity ratio has improved to 0.38x at end 1QFY2022 from 0.49x at end 4QFY2021. This translates into lower net debt levels of around $800 million, compared with around $1.97 billion as at end 4QFY2022.
As the companies no longer report their financials in their first and third quarters, there is no visibility on Sembmarine’s cash flow position for those periods. In FY2021 though, the company’s net cash outflow was more than $600 million, which was significantly lower than FY2020’s figure. Still, Sembmarine’s net loss of $1.175 billion weighed heavily not just on its P&L statement but on capital too. Its revenue reserves collapsed from $1.15 billion in FY2020 to negative $21 million in FY2021.
As a result, the $1.5 billion raised from a rights issue in September 2021 helped to buoy capital and the company ended with shareholders’ equity of more than $4 billion in FY2021.
Since the FY2021 results update, there has been no further disbursement of the proceeds from the $1.5 billion September 2021 rights issue, Sembmarine says in its update. The balance of the net proceeds of about $720 million will be used for general corporate purposes, including working capital. The group says it expects to have the necessary liquidity to fund its operations for the foreseeable future.
Lots of jobs around
During a results briefing back in February, Sembmarine’s CEO Wong Weng Sun said: “The improving industry outlook on the back of rising oil prices provides an impetus for oil and gas companies to review plans for the resumption of deferred activities, final investment decisions and capital expenditures. There are also improved prospects and opportunities associated with the global transition towards cleaner energy and sustainable solutions.”
As at end 1QFY2022, Sembmarine has a net order book of $1.75 billion, up from $1.3 billion in 4QFY2021. This consisted of $1.51 billion of projects under execution (with a total original contract sum of $5.45 billion) and $0.24 billion of ongoing repairs & upgrades projects. Renewables and cleaner/green solutions comprise approximately 65% of the group’s net order book.
In March, Sembmarine secured a landmark contract from Maersk for the construction of a wind turbine installation vessel (WTIV) which is designed to handle next-generation wind turbines that are larger.
Negotiations too are ongoing with the Brazilian Navy on the construction of the Antarctic support vessel and a Brazil Navy research vessel project, with the contract award expected in 2QFY2022. Sembmarine also secured multiple contracts for major repairs and upgrades, including three US navy vessels.
Elsewhere, Sembmarine also won a block booking of nine Maersk container vessels for repairs, with several requiring the installation of ballast water treatment systems.
With rising oil prices, Sembmarine is actively working on several tender opportunities in the offshore & marine segment as well as enquiries for offshore vessel upgrading projects. In addition, the group is also pursuing multiple tenders in the offshore renewables and new energy segments as the industry continues to see improving prospects with the global transition towards cleaner energy and sustainable solutions.
Unfair alliance?
On April 27, Sembmarine and Keppel Corp announced definitive agreements for a merger/ proposed combination between Sembmarine and Keppel Offshore & Marine (KOM). The proposed combination will involve the creation of a new combined listed entity, Bayberry.
Under the scheme of arrangement, Sembmarine
shareholders will be able to vote for a one-for-one exchange of Sembmarine shares for Bayberry shares and the transfer of Sembmarine’s listing status to that of Bayberry, and the acquisition of Keppel O&M by Bayberry to be paid for via issuance of new shares of Bayberry.
However, once shareholders have received the circular, they may want to question the investment bankers on how the shares in the combined entity will be apportioned to Sembmarine and Keppel. According to the pro forma financial information, it appears that the net tangible assets (NTA) of Sembmarine in the combined entity is $3.8 billion while the NTA of KOM in the combined entity is $0.9 billion. Yet, Sembmarine will hold 44% of Bayberry and Keppel 56%.
The tragedy of Sembmarine is that just as conditions are ripe for the group to strike out on its own and turn profitable, it will be a smaller part of a larger whole. A rising tide may lift all boats but the flotilla may leave Sembmarine’s shareholders behind.