In its latest 3QFY2022 ended September business update, Sembcorp Marine announce that it has signed a revised structure and terms of its proposed combination with Keppel Offshore and Marine (KOM).
The group previously announced on Apr 27 that it had entered into definitive agreements for the proposed combination. On Oct 27, the group entered into an amended and restated combination framework agreement with Keppel Corporation to effect the proposed combination via a direct acquisition of KOM by Sembcorp Marine with improved terms.
Under the simplified revised structure where Sembcorp Marine directly acquires 100% of KOM from Keppel, there will no longer be a combined entity; and the proposed one-for-one share exchange between the combined entity and Sembcorp Marine, and the transfer of Sembcorp Marine’s listing status to the combined entity (collectively, the earlier Sembcorp Marine Scheme) will no longer apply.
Sembcorp Marine will retain its listing status on the Mainboard of the Singapore Exchange and directly issue new Sembcorp Marine shares to Keppel, if approved by minority shareholders. The transaction closing time may potentially be reduced by up to two months.
Under the revised terms, Sembcorp Marine has achieved an improvement in the equity value exchange ratio to 46:54 (SCM:KOM) from the earlier 44:56 (SCM:KOM). The improved equity value exchange ratio translates to an 8% improvement or $378 million from the previous KOM purchase consideration announced on Apr 27.
The extraordinary general meeting (EGM) for Sembcorp Marine shareholders to vote on the proposed combination is expected to be convened in December or January 2023 after key approvals are obtained and other regulatory submissions are completed.
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Operations review
Year-to-date (ytd), the group had a total of 21 projects under execution with 12 projects scheduled for completion and delivery in FY2022. Nine of the 12 projects have been delivered ytd.
The repairs & upgrades business continued to gradually improve in 3QFY2022. However, this improvement was lower than expected due partly to the residual effects of Covid-19 measures. For the reported quarter, the group serviced a total of 60 vessels at its yards and these included cruise liners, container vessels, cargo and bulk carriers, crude oil tankers, naval vessels and liquefied natural gas (LNG) carriers.
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The group has three more projects scheduled for delivery by the end of the year. A further nine projects will be progressively delivered from 2023 to 2026. With the successful deliveries achieved ytd, the group has freed up resources for re-deployment to other ongoing projects. This has also enabled it to actively pursue new projects to further increase its order book.
Overall, while project executions were relatively smooth, the group continued to experience residual effects of Covid-19 related to skilled labour required to complete delayed projects. In particular, repatriation of temporary workers from higher cost alternative sources was significantly delayed till 4QFY2022 due to border restrictions and unavailability of flights to their home country. These delays led to increased one-off costs.
Overall orders visibility across the group’s product segments continued to improve. The group reported significant newbuild contract wins in October. Ytd, it has secured new contracts in excess of $6.71 billion, including about $420 million of repairs & upgrades contracts.
Ytd, the group has recorded a net order book of $7.11 billion. This consists of approximately $6.80 billion of projects under execution (with a total original contract sum of $9.11 billion) and about $310 million of ongoing repairs & upgrades projects.
On the outlook, the group remains focused on completing the remaining three projects scheduled for delivery by end of the year, as well as smooth execution of the further nine projects to be delivered from 2023 to 2026.
The overall industry outlook across the oil & gas and offshore renewables sectors continues to improve and the group is actively working on converting its orders pipeline into further firm contracts.
While the group completed several key projects and secured significant new orders in recent months, revenue and earnings from the completed projects and initial contributions from new projects were not sufficient to offset higher labour and other costs. Overall business volumes are expected to pick up in FY2023. The group expects to post losses in 2HFY2022, similar to that of 1HFY2022.
Shares in Sembcorp Marine last traded at 13 cents on Nov 14.
