Sembcorp Marine: Proposal to Restructure

Name: Sembcorp Marine: Proposal to Restructure (English version)
SKU: W27820

Allaudeen Hameed, Ruth S.K. Tan

Product #:W27820

Supplier:Ivey/NUS

Discipline:Finance

Setting:Singapore, 2021

Details:Case (PDF) • 13 pages • 2023-04-20

Subjects:

Finance and investing

Geography:

Asia Singapore

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$9.71

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On June 24, 2021, Keppel Corporation (Keppel) and Sembcorp Marine Limited (Sembmarine) announced that they had signed a non-binding memorandum of understanding to enter into exclusive talks to merge Sembmarine and Keppel Offshore and Marine (Keppel O&M), a division of Keppel. Separately, but on the same day, Sembmarine also announced an intention to raise S$1.5 billion through a three-for-two renounceable rights issue (up to 18.83 billion new shares) at an exercise price of S$0.08 per share, which was a 35.7 per cent discount to the theoretical ex-rights price and a 58.1 per cent discount to the June 23 closing price of S$0.191.

Based on the share price reaction to the announcement of the restructuring, what was the market’s perception of the merger? Would it create value? Should Sembmarine raise capital via a rights issue and should shareholders subscribe to the rights issue?

Learning Objectives

This comprehensive case can be used in an advanced undergraduate- or graduate-level course on corporate finance or financial management.This case presents an opportunity for students to examine how an offshore and marine company attempts to alter its capital structure in order to survive challenging market conditions, and the reaction of the market to its funding and investment decisions. The assignment questions will require students to do the following:

Analyze the rationale of the rights issue.
Value the shares using the discounted cash flow model and relative valuation.
Predict the impact of the merger on the acquirer and the target.
Analyze the impact on the major shareholder, Temasek Holdings (Temasek), a state-owned investment firm.