Seatrium Limited (formerly SembCorp Marine and KOM)

[ghchua]

Hi Shrivathsa,

Why would Temasek want to put itself in a position to make a takeover offer for minorities, even at 8cts per share? If this rights issue triggers a mandatory takeover due to Temasek's underwriting, they could obtain a wavier from the respective authorities and put a whitewash resolution (for Independent Shareholders to waive their rights to receive a mandatory take-over offer from them) to vote at an EGM, with them abstaining from voting. They have done this during the rights issue last year, and I see no reason why they could not do that again this time round.

[Shiyi]

Hi Shrivathsa,

Why would Temasek want to put itself in a position to make a takeover offer for minorities, even at 8cts per share? If this rights issue triggers a mandatory takeover due to Temasek's underwriting, they could obtain a wavier from the respective authorities and put a whitewash resolution (for Independent Shareholders to waive their rights to receive a mandatory take-over offer from them) to vote at an EGM, with them abstaining from voting. They have done this during the rights issue last year, and I see no reason why they could not do that again this time round.

That Temasek has not asked for a waiver seems to suggest that it is prepared to launch a GO if the rights are under-subscribed. If it can mop up the shares at 8 cents, why not? That may also pave the way for the merger of Keppel O &M and Sembmarine.

[Shrivathsa]

Hi Shrivathsa,

Why would Temasek want to put itself in a position to make a takeover offer for minorities, even at 8cts per share? If this rights issue triggers a mandatory takeover due to Temasek's underwriting, they could obtain a wavier from the respective authorities and put a whitewash resolution (for Independent Shareholders to waive their rights to receive a mandatory take-over offer from them) to vote at an EGM, with them abstaining from voting. They have done this during the rights issue last year, and I see no reason why they could not do that again this time round.

Hi ghchua,

You are right in terms of the question as to why Temasek would want to put itself in a situation?

Thanks to shiyi for providing the link and the answer.

Reading the link carefully, Temasek has indicated that in case they have to make a Mandatory Offer, it will be at  the offer price i.e. 8 cents.

It makes sense for Temasek to privatize at 8 cents as they are anyway underwriting at 8 cents.

However, such a privatization will most likely annoy 

a) the OPMI who have bought the shares after the announcement thinking there will be a premium
b) Longstanding OPMI who have held on to the shares

I guess one will have to wait and see if there is a privatization offer after the rights issue and if yes, whether it is at 8 cents or at a premium.

If it is at a premium, then the retail investors who have bought after announcement and got the rights at 8 cents will be happy.

 Chances are segment b) will be unhappy in any case, so at least with a premium, segment a) will be happy.

[specuvestor]

it is particularly annoying for those who had subscribed rights at 20cts not so long ago.

I'm sure there are many who would like to know the logic of 8cts; why not 16cts and reduce the rights by 1/2 but instead provide the reason for Mr Market to penailse existing OPMI stake to go down to 12cts. Or Temasek can do another MCB at 18-20cts strike

I don't think Temasek has a problem of keeping SMM listed even if GO. Just have to get waiver to place out shares so that 10% freefloat. Might be a consideration for others but incredible why it would be Temasek's reason.

(Bloomberg) -- Temasek has undertaken to subscribe for up to 67% of the 2021 Sembcorp Marine rights issue, the investment firm says in a statement.
Temasek says Sembcorp Marine will have certainty it will raise full S$1.5b it requires
Temasek has undertaken to subscribe to its pro-rata entitlements, as well as excess rights not taken up by other shareholders, which total up to 67% of the rights issue in aggregate
Says DBS has separately underwritten the remaining 33% of rights issue
Temasek views this rights issue to be in best interests of Sembcorp Marine
Reiterates that the upcoming rights issue and potential Sembcorp Marine combination with Keppel O&M are independent transactions, which will be separately and independently subject to shareholder votes
Says it is improper to suggest that these are part of a corporate exercise to benefit Temasek at the expense of minority shareholders of SembMarine

Agree and bad taste after just issuing rights at 20cts. I think M&A guy in Temasek might have been changed and not the usual gentleman Temasek anymore, after a distasteful Capitaland grab in my view.

[weijian]

Sembcorp Marine @ 20cents

Update on Impact of COVID-19 Phase 2 (Heightened Alert) Restrictions

The Company wishes to update shareholders that with the Phase 2 (Heightened Alert) restrictions introduced by the Singapore Government on 16 May 2021, the Group continues to face challenges in recruiting new skilled workers for its various projects. The Group has therefore been exploring alternative sources for skilled workers, which is likely to incur increased manpower costs for some of its ongoing projects.

https://links.sgx.com/FileOpen/Announcem...eID=670488

Not sure if there is any kitchen sinking involved. Sounds real bad and the numbers will be really really bad - Since half year losses does not need to do asset impairments, it means 1H2021 operating losses is equivalent to a full year of operating losses in FY20 + asset write downs.

PROFIT GUIDANCE FOR HALF YEAR ENDED 30 JUNE 2021

These provisions will have a material adverse impact on the Group’s 1H2021
results. As at the date of this release, the Group expects that losses for 1H2021
are likely to be in the region of the full year losses incurred for FY2020.

https://links.sgx.com/FileOpen/PROFIT%20...eID=674308

[retnuoc]

Sembcorp Marine @ 20cents

Update on Impact of COVID-19 Phase 2 (Heightened Alert) Restrictions

The Company wishes to update shareholders that with the Phase 2 (Heightened Alert) restrictions introduced by the Singapore Government on 16 May 2021, the Group continues to face challenges in recruiting new skilled workers for its various projects. The Group has therefore been exploring alternative sources for skilled workers, which is likely to incur increased manpower costs for some of its ongoing projects.

https://links.sgx.com/FileOpen/Announcem...eID=670488

Not sure if there is any kitchen sinking involved. Sounds real bad and the numbers will be really really bad - Since half year losses does not need to do asset impairments, it means 1H2021 operating losses is equivalent to a full year of operating losses in FY20 + asset write downs.

PROFIT GUIDANCE FOR HALF YEAR ENDED 30 JUNE 2021

These provisions will have a material adverse impact on the Group’s 1H2021
results. As at the date of this release, the Group expects that losses for 1H2021
are likely to be in the region of the full year losses incurred for FY2020.

https://links.sgx.com/FileOpen/PROFIT%20...eID=674308

From announcement:
3. The Group is currently in the process of finalising its 1H2021 financial results, whichisscheduledforreleaseon29July2021.Basedonthelatestinformationavailable, the Group has more visibility on the likely cost increases to complete the Group’s ongoing projects in FY2021 and FY2022. The Group will be making full provisions for these increased costs in the 1H2021 financial results.

Seems they are going to making provisions for operating cost till end of FY 2020? Not the actual operating cost for 1H2021

[donmihaihai]

For project based co. such as construction of rig/vessel/building/road/spaceship, etc there are a lot of estimations involve to smoothen out the yearly reporting earnings.

eg, i am constructing a spaceship for you and will only bill you at the end of 3rd year but I am able to split and recognise revenue and cost over all 3 years. How much I earn will depend on my estimated cost of building the spaceship. Now with COVID, I will be making losses building your spaceship because my estimated cost increased by 50%. Accounting standard say recognise that increased cost now.

Isn't it reasonable?
Since there are lot of estimation, isn't it easy for people to game the system?

[weijian]

From announcement:
3. The Group is currently in the process of finalising its 1H2021 financial results, whichisscheduledforreleaseon29July2021.Basedonthelatestinformationavailable, the Group has more visibility on the likely cost increases to complete the Group’s ongoing projects in FY2021 and FY2022. The Group will be making full provisions for these increased costs in the 1H2021 financial results.

Seems they are going to making provisions for operating cost till end of FY 2020? Not the actual operating cost for 1H2021

Well from what I see from their accounting principles, the contract costs are capitalized. So I reckon the cost still remains on the balance sheet in 2021, amid at a higher amortizing rate in coming years.

AR2020 (page 129)
https://www.sembmarine.com/scm2016/wp-co...ores-2.pdf

[Yoyo]

SMM AR2020 (page 129) 
3 SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 3.19 Revenue (cont’d) (i) Contract revenue (cont’d)

Estimates of revenues, costs or extent of progress toward completion are revised if circumstances change. Any resulting increases or decreases in estimated revenues or costs are reflected in profit or loss in the period in which the circumstances that give rise to the revision become known by management

For costs incurred in fulfilling the contract which are within the scope of another SFRS(I) (e.g. Inventories), these have been accounted for in accordance with those other SFRS(I). If these are not within the scope of another SFRS(I), the Group will capitalise these as contract costs only if (a) these cost relate directly to a contract or an anticipated contract which the Group can specifically identify; (b) these costs generate or enhance resources of the Group that will be used in satisfying (or in continuing to satisfy) performance obligations in the future; and © these costs are expected to be recovered. Otherwise, such costs are recognised as an expense immediately. Capitalised contract costs are subsequently amortised on a systematic basis as the Group recognises the related revenue over time. An impairment loss is recognised in the profit or loss to the extent that the carrying amount of capitalised contract costs exceeds the expected remaining consideration less any directly related costs not yet recognised as expenses.

Based on the above accounting policies (prudence accounting principle), SMM issue a profit guidance - 
The Group is currently in the process of finalising its 1H2021 financial results, which is scheduled for release on 29 July 2021. Based on the latest information available, the Group has more visibility on the likely cost increases to complete the Group’s ongoing projects in FY2021 and FY2022. The Group will be making full provisions for these increased costs in the 1H2021 financial results.

<Basically, it means that these ongoing projects are going to be loss making.  The accounting principle of Prudence guided losses to be immediately recognised>

Onerous Contract 
https://www.investopedia.com/terms/o/one...ntract.asp

Dr Profit and Loss
Cr Provisions - Onerous Contract
The provisions made will be reflected under Notes to Accounts 20 Provisions (page 151)

Query - Since there are lot of estimation, isn't it easy for people to game the system?
<Management has to put up their best estimates, and auditors are supposed to challenge these estimation.  How well they do their jobs is another thing.  That is why Accounting is an art, not a science.>

Hope this helps.

[Shrivathsa]

A positive development for the OPMI shareholders. SIAS has stepped in to express its concern. Hopefully, they will now call off the rights issue