SembCorp Industries

[karlmarx]

SCI became a more attractive investment as value is unlocked from the disposal of a major asset.

SMM became a less attractive investment as shareholders have to put in more money.

Both will come out of this with nicer balance sheets.

But even as they are separated, both will still face material challenges in their respective markets. And their gearing, post corporate actions, although substantially lower, should still be a cause for investor concern.

[specuvestor]

SCI levered up SGD1.5b mainly from Temasek to "lend" to SMM

Effectively SCI has just become a levered utility that's paying out SGD1.5b in "dividend"

Likely Temasek will hold 29.9% of SMM and merge or sell to 51% (akan datang) owned Keppel Offshore

[Greenrookie]

Hmm... There is something I dun understand. Assume we expect the Sembcorp marine and SCI will succeed.

Marine is at 60 cents, SCI is 2.1

SCI will get 1 for 4 minimum

If u want to buy SCM ...
U might as well but SCI as 60 X 4 is 2.4, u get it cheaper and SCI is free.

[karlmarx]

There will be a lot more new SMM shares (5 for 1) which will be sold at a much lower price (20 cents). So the SMM shares which SCI shareholders will receive will probably not be worth the present price of 60 cents.

[Greenrookie]

There will be a lot more new SMM shares (5 for 1) which will be sold at a much lower price (20 cents). So the SMM shares which SCI shareholders will receive will probably not be worth the present price of 60 cents.

Hi Karlmax,

That's exactly how I feel. Either SCI too low or SCM too high. There is a gap here. Highly likely is SCM too high

[ACTIVIST SPEAKS]

There will be a lot more new SMM shares (5 for 1) which will be sold at a much lower price (20 cents). So the SMM shares which SCI shareholders will receive will probably not be worth the present price of 60 cents.

Hi Karlmax,

That's exactly how I feel. Either SCI too low or SCM too high. There is a gap here. Highly likely is SCM too high

Err......actually this is opposite of what Karlmarx said...

[weijian]

There will be a lot more new SMM shares (5 for 1) which will be sold at a much lower price (20 cents). So the SMM shares which SCI shareholders will receive will probably not be worth the present price of 60 cents.

Hi Karlmax,

That's exactly how I feel. Either SCI too low or SCM too high. There is a gap here. Highly likely is SCM too high

hi Greenrookie,
Probably need to do the actual maths.

- For simplification, let's assume SCM is at 60 cents, SCI is 2.1. A SCI shareholder will eventually own 4.5shares of SCM.

- Assume a scenario where A buys 1 SCM share at 60cents. After XD, A has 5 right shares and fully subscribe to it at 20cents. In total, A's cost would be 60cents + (20 cents x 5) = 1.60sgd and with 6 shares, his cost is now 1.6/6 = 0.267cents.

- B buys 1 SCI share at 2.1sgd. After SCM's XD, he owns 1 SCI share + 4.5 SCM shares. The 4.5 SCM shares are now worth 1.2sgd based on "cost-to-cost" comparison. After SCI's XD, his SCI share will probably drop by a similar magnitude to his 4.5 SCM share's market value, like any normal XD event.


They are probably a few "2nd order effects" that will soon play out that i can think of:

(1) With SCI distributing SCM shares totally to its shareholders and then still liable for the 1.5billion loan, I suspect SCI's market capitalization will get dangerously close to the minimum 2billion cut off that is required to stay in the STI index. There is a good chance it may be booted out if market conditions go against it, without its own cash call.

(2) I think there may soon be an opportune time to review SCM as an investment. Tons of bad news have been incorporated in and there will soon be a lot of SCI investors who wants to sell their "free" SCM shares on the open market. But the reality is, this rights issue will strengthen SCM's BS and more importantly, its earnings by removing the interest costs. Essentially, the current corporate actions resembles a Chapter13 bankruptcy proceedings where your creditors' debt (1.5bil by SCI) are converted to equity. Depending on how the "merger" between Keppel O&M and SCM pans out, eventually there may be a GO for SCM.

[Greenrookie]

There will be a lot more new SMM shares (5 for 1) which will be sold at a much lower price (20 cents). So the SMM shares which SCI shareholders will receive will probably not be worth the present price of 60 cents.

Hi Karlmax,

That's exactly how I feel. Either SCI too low or SCM too high. There is a gap here. Highly likely is SCM too high

hi Greenrookie,
Probably need to do the actual maths.

- For simplification, let's assume SCM is at 60 cents, SCI is 2.1. A SCI shareholder will eventually own 4.5shares of SCM.

- Assume a scenario where A buys 1 SCM share at 60cents. After XD, A has 5 right shares and fully subscribe to it at 20cents. In total, A's cost would be 60cents + (20 cents x 5) = 1.60sgd and with 6 shares, his cost is now 1.6/6 = 0.267cents.

- B buys 1 SCI share at 2.1sgd. After SCM's XD, he owns 1 SCI share + 4.5 SCM shares. The 4.5 SCM shares are now worth 1.2sgd based on "cost-to-cost" comparison. After SCI's XD, his SCI share will probably drop by a similar magnitude to his 4.5 SCM share's market value, like any normal XD event.


They are probably a few "2nd order effects" that will soon play out that i can think of:

(1) With SCI distributing SCM shares totally to its shareholders and then still liable for the 1.5billion loan, I suspect SCI's market capitalization will get dangerously close to the minimum 2billion cut off that is required to stay in the STI index. There is a good chance it may be booted out if market conditions go against it, without its own cash call.

(2) I think there may soon be an opportune time to review SCM as an investment. Tons of bad news have been incorporated in and there will soon be a lot of SCI investors who wants to sell their "free" SCM shares on the open market. But the reality is, this rights issue will strengthen SCM's BS and more importantly, its earnings by removing the interest costs. Essentially, the current corporate actions resembles a Chapter13 bankruptcy proceedings where your creditors' debt (1.5bil by SCI) are converted to equity. Depending on how the "merger" between Keppel O&M and SCM pans out, eventually there may be a GO for SCM.

 Thanks Weijian,

Very clear explanation. I understand better now. Going by the same calculation, 1.2 dollars is the furture "value" of SCM at current 60 cents, SCI will fall to 90 cents. So a cleaner slate of SCI without any contribution/ burden from SCM is 90 cents, which is still ... ... 

But at least it seems logicial and is a matter of pricing, and not something totally unfathomable.

[Greenrookie]

There will be a lot more new SMM shares (5 for 1) which will be sold at a much lower price (20 cents). So the SMM shares which SCI shareholders will receive will probably not be worth the present price of 60 cents.

Hi Karlmax,

That's exactly how I feel. Either SCI too low or SCM too high. There is a gap here. Highly likely is SCM too high

Err......actually this is opposite of what Karlmarx said...

haha, i got it now, pardon me

[ACTIVIST SPEAKS]

All the bad news are out there for everybody to see.....Personally, I think Temasek is strategizing on "who is left" in the Offshore and Marine Sector with both Semb Marine and Keppel O & M.  The Chinese say it best "剰者为王“