We were taken aback by Ben Paul’s article entitled “Is Sembmarine's rights issue to position it for a cash-depleting merger with Keppel O&M?” (BT, 5 July), where he incorrectly suggested that the transaction benefits Temasek at the expense of minority shareholders of Sembcorp Marine (SembMarine).

This is largely because he linked SembMarine’s S$1.5bn rights issue (“2021 Rights Issue”) with the potential combination between SembMarine and Keppel O&M (“Potential Combination”).

The 2021 Rights Issue of SembMarine, and Potential Combination between SembMarine and Keppel are two independent transactions.

SembMarine’s Rights Issue

In the 2021 Rights Issue, SembMarine has reaffirmed that the recapitalisation is needed to strengthen its balance sheet and enhance its liquidity position, resulting from the severe impact of Covid-19. This will better position it to bid for larger projects and accelerate its pivot into the fast growing renewable and clean energy segment. The 2021 Rights Issue is subject to the approval of Sembcorp Marine’s shareholders, and is independent of the outcome of the discussions on the Potential Combination. 

Temasek views this 2021 Rights Issue to be in the best interests of Sembcorp Marine. Temasek also has an interest in catalysing transition to a carbon neutral world. Thus, we have undertaken to subscribe for our pro-rata entitlements to the 2021 Rights Issue, plus excess rights not taken up by other shareholders, up to 67% of the 2021 Rights Issue in aggregate. DBS has separately underwritten the remaining 33%. This means Sembcorp Marine will have certainty that it can raise the full S$1.5bn it requires.

This is different from the transactions last year, where there was a proposal to demerge SembMarine from its parent, Sembcorp Industries, along with a rights issue by SembMarine that injected S$600m of working capital, and retired a S$1.5b loan from its parent.  The vast majority of shareholders of both companies voted for the transactions at their respective EGMs in August 2020. Temasek, too, saw the 2020 rights issue as in the best interest of SembMarine, and its demerger from Sembcorp Industries, as in the best interests of both companies.

Temasek became a 42.6% shareholder in SembMarine after the resulting demerger from Sembcorp Industries. We received a proportionate share of SembMarine shares, like other Sembcorp Industries shareholders. In addition, we acquired 8.2% of SembMarine through the rights issue at S$0.20 per share – the same price paid by every other subscriber.

The Potential Combination

As SembMarine and Keppel have announced, discussions about their Potential Combination are at a very preliminary stage. If there is a definitive agreement on this, shareholders of both companies will then be asked to consider and vote on it separately.

As outlined by Keppel and SembMarine on their discussions, it is the Combined Entity that would pay the consideration of up to S$500m to Keppel from the combined asset base of Keppel O&M and SembMarine, not just SembMarine’s, should the Potential Combination be approved. It is not correct to say that the proposed 2021 Rights Issue is to provide those funds to pay Keppel.

In short, the upcoming 2021 Rights Issue and Potential Combination are independent transactions, which will be separately and independently subject to shareholder votes. It is improper to suggest that these are part of a corporate exercise to benefit Temasek at the expense of minority shareholders of SembMarine. 

Nagi Hamiyeh
Joint Head, Investment Group
Head, Portfolio Development
Temasek