• As expected and stipulated in the offer document, with a post-rights allotment stake of 46.6%, Temasek triggers a conditional mandatory general offer (MGO) for MI stake at S$0.08.
• If Temasek’s concert parties receive more offers that result in them acquiring more than 50% of Sembcorp Marine, MGO would become unconditional.
• Temasek intends to keep Sembcorp Marine listed. But if free float falls below 10% (low likelihood), it would have to delist Sembcorp Marine under Rule 723 of listing manual.
• Closing date of the exercise will be in Nov, or 42 days from 22 Sep’s formal announcement of MGO. Reiterate HOLD on Sembcorp Marine with unchanged target price of S$0.093.

Sembcorp Marine to Remain Listed

• Startree, an indirect wholly-owned subsidiary of Temasek, is making a mandatory general offer (MGO) as its shareholding in Sembcorp Marine (SGX:S51) increased by more than 1% as a result of Startree’s participation in Sembcorp Marine’s rights issue. The offer price is S$0.08 per share in cash (in line with the rights issue price) and is in compliance with the requirements of the MGO code where any person who, together with its concert parties, holds between 30% and 50% of the voting rights of a company and such person, or any of its concert parties, acquires additional shares carrying more than 1% of the voting rights of the company in any six-month period is required to make a MGO.
• Startree’s current intention is to maintain the listing status of Sembcorp Marine. However, if the free float falls below 10% as a result of the exercise, Rule 723 sets in for delisting. We think the likelihood of this happening is also low for now.

What’s the Likelihood of Sembcorp Marine's Shareholders Accepting or Rejecting Offer?

• We believe the likelihood of shareholders accepting the combined order book of S$7.5bn (1H21: Sembcorp Marine: S$1.78bn, KOM: S$5.7bn). Recall that the combined earnings of KOM and Sembcorp Marine in the peak of the oil price cycle were S$1.9bn in 2010.

42 Days to Decide

• The indicative date for the closing of MGO will be about 42 days form 22 HOLD rating on Sembcorp Marine with an unchanged target price of S$0.09, still based on 0.7x CY21F P/BV.
• Temasek’s support and the potential merger with Keppel O&M are upside risks.
• Key downside risks: impairment of assets (Brazilian and Singapore yards), cost overruns and another round of fund raising.

Source: CGS-CIMB Research - 22 Sep 2021