Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

The <a href="https://www.smartkarma.com/entities/sembcorp-marine-ltd" target="_blank" data-smartkarma-citation="entities:11:1" rel="noopener">Sembcorp Marine (SMM SP)</a> Rights Offering is complete, and <a href="https://links.sgx.com/FileOpen/Announcement%20on%20Results%20of%20Rights%20Issue.ashx?App=Announcement&amp;FileID=683891" target="_blank" rel="noopener">allocations are out</a> as of Friday night.  and it turns out, the MGO Option as discussed in <a href="https://www.smartkarma.com/insights/one-more-day-to-trade-sempcorp-marine-rights-harvest-the-spread-or-buy-the-mgo-option" target="_blank" data-smartkarma-citation="insights:57287" rel="noopener">One More Day To Trade Sembcorp Marine Rights, Harvest the Spread, or Buy The MGO Option</a>as rights trading was coming to a close, was the right way to think about it. Only 84.2% of the Offering was covered by shareholders exercising their rights. Temasek took 42.6%, which means that only 72% of the other shareholders took up their rights. That meant that based on the Offering Circular and the Temasek Undertakings therein, Temasek was going to end up increasing its stake by more than 1%, thereby triggering an MGO Option (it required 98.33% minority takeup to avoid going over the MGO trigger).As I described it, there was still potential risk of MGO non-completion, and the results of the Rights Issue seems to suggest there is still potential risk of MGO non-completion.More below the fold.

The Sembcorp Marine (SMM SP) Rights Offering is complete, and allocations are out as of Friday night.  and it turns out, the MGO Option as discussed in One More Day To Trade Sembcorp Marine Rights, Harvest the Spread, or Buy The MGO Optionas rights trading was coming to a close, was the right way to think about it. Only 84.2% of the Offering was covered by shareholders exercising their rights. Temasek took 42.6%, which means that only 72% of the other shareholders took up their rights. That meant that based on the Offering Circular and the Temasek Undertakings therein, Temasek was going to end up increasing its stake by more than 1%, thereby triggering an MGO Option (it required 98.33% minority takeup to avoid going over the MGO trigger).As I described it, there was still potential risk of MGO non-completion, and the results of the Rights Issue seems to suggest there is still potential risk of MGO non-completion.More below the fold.

Sembcorp Marine Rights Done - The MGO Option It Is

The Rights of <a href="https://www.smartkarma.com/entities/sembcorp-marine-ltd" target="_blank" data-smartkarma-citation="entities:11:1" rel="noopener">Sembcorp Marine (SMM SP)</a> started trading on 31 August, trading rich the first day, as expected, then falling. After closing at half a cent on the first day of trading, they are now trading at 0.001-0.002 despite Sembcorp Marine shares trading at 8.5-8.6 cts. 
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If there were borrow on SMM left, it would be a great arb.
As it is, every long-only holder who is UP money in their portfolio should, if they can, sell the SMM shares and replace with SMM Rights. It will give them a 5% spread on their SMM shares. 
They have the rest of today and tomorrow to trade. 
There is also an "MGO Option." And this bit is interesting.

The Rights of Sembcorp Marine (SMM SP) started trading on 31 August, trading rich the first day, as expected, then falling. After closing at half a cent on the first day of trading, they are now trading at 0.001-0.002 despite Sembcorp Marine shares trading at 8.5-8.6 cts. 



If there were borrow on SMM left, it would be a great arb.
As it is, every long-only holder who is UP money in their portfolio should, if they can, sell the SMM shares and replace with SMM Rights. It will give them a 5% spread on their SMM shares. 
They have the rest of today and tomorrow to trade. 
There is also an "MGO Option." And this bit is interesting.

One More Day To Trade Sembcorp Marine Rights, Harvest the Spread, or Buy The MGO Option

David Blennerhassett

Last Week in Event SPACE: Sembcorp, CK Hutch, Prosus/Naspers, Z Energy, Milton, China Logistics

Two months ago, <a href="https://www.smartkarma.com/entities/sembcorp-marine-ltd" target="_blank" data-smartkarma-citation="entities:11:1" rel="noopener">Sembcorp Marine (SMM SP)</a> announced a Rights Offering to raise S$1.5bn to recapitalise operations and provide working capital for the 16 projects currently under execution, some of which have been hit by delays where payment was expected sooner and it will instead come later. 
The Rights Offering, coming on top of another Rights Offering and distribution of shares a year ago as the company was <s>cast away by</s> separated from its erstwhile parent <a href="https://www.smartkarma.com/entities/sembcorp-industries-ltd" target="_blank" data-smartkarma-citation="entities:1087:1" rel="noopener">Sembcorp Industries (SCI SP)</a> seemed to upset shareholders who did not understand why a second large offering in a year was needed. The simple answer was that last year, the net capital raise was minimal. It was primarily designed to generate proceeds to be able to pay back a large loan extended by its parent before the split. This year it is about survival.  
As I noted then, it was important to read the <a href="https://links.sgx.com/FileOpen/Trading%20and%20Liquidity%20Update.ashx?App=Announcement&amp;FileID=672231" target="_blank" rel="noopener">Trading and Liquidity Update</a>. The big points are:
<div>
<ol style="list-style-type: decimal;">
<li>Workers are scarce. Costs are up. There are supply constraints because of covid-19. Foreign workers who left can't come back. Relative Singapore success in fighting covid early on raised labor costs locally. It is tough to get new workers and new covid-19 measures introduced in May 2021 won't make it easier. </li>
<li>Projects are delayed. Cash Flows are delayed. In particular, the delivery of two drillships to Transocean has been deferred from FY21/22 to FY2023 and later, delaying S$610mm in cash flow.</li>
<li>The company needs to optimize cost structure</li>
<li>Group turnover this year has been lower than expected. </li>
<li>The group needs to raise money to get comfort on ability to complete existing contract base.</li>
<li>The company is pivoting to renewables and clean energy solutions.</li>
</ol>
The company needs money for all this. And a Rights Issue would provide certainty and immediacy.
The Securities Investors Association (Singapore), which has the general reputation of standing up to companies which do deals where retail investors are inconvenienced, came out with a press release with questions on <a href="https://sias.org.sg/latest-updates/press-statement-questions-to-sembcorp-marine-on-its-latest-proposed-rights-issue/" target="_blank" rel="noopener">15 July</a> which SMM answered on <a href="https://links.sgx.com/FileOpen/Announcement.ashx?App=Announcement&amp;FileID=675213" target="_blank" rel="noopener">19 July</a>.  The company got its Approval in Principle in early August from the SGX. SIAS sponsored a virtual dialogue on <a href="https://sias.org.sg/latest-updates/transcript-of-sias-sembcorp-marine-virtual-dialogue-6-august-2021/" target="_blank" rel="noopener">6 August</a>. There was an update on the <a href="https://links.sgx.com/1.0.0/corporate-announcements/JWHV82WCY953USMS/7bf07888e4783b9b297db68ce0cfac6a63afa1e381c0f244820b7f7d26feba8f" target="_blank" rel="noopener">18th of August</a> from the company, a further very late-in-the-day Q&amp;A published on <a href="https://links.sgx.com/FileOpen/Response%20to%20additional%20questions%20from%20shareholders.ashx?App=Announcement&amp;FileID=680896" target="_blank" rel="noopener">23 August</a> in the morning before the EGM, the EGM was held yesterday, the Rights Offering was approved, and...
...Today after the close, we have an announcement of the Rights Trading Period (31 Aug - 8 Sep), the Exercise Period (31 Aug - 14 Sep) and Pay Date (22 Sep) along with a re-delivery of all the documents from late June and early August (<a href="https://links.sgx.com/FileOpen/Launch%20Announcement.ashx?App=Announcement&amp;FileID=681089" target="_blank" rel="noopener">Announcement</a>, <a href="https://links.sgx.com/FileOpen/Media%20Release.ashx?App=Announcement&amp;FileID=681090" target="_blank" rel="noopener">Media Release</a>, <a href="https://links.sgx.com/FileOpen/Presentation.ashx?App=Announcement&amp;FileID=681091" target="_blank" rel="noopener">Presentation</a>, and <a href="https://links.sgx.com/FileOpen/Trading%20and%20Liquidity%20Update.ashx?App=Announcement&amp;FileID=681092" target="_blank" rel="noopener">Trading and Liquidity Update</a>).
24 August was the last day to trade WITH rights. 25 August is the first day to trade ex-rights.
There is strategy involved. 
Much more below the fold.
</div>

Two months ago, Sembcorp Marine (SMM SP) announced a Rights Offering to raise S$1.5bn to recapitalise operations and provide working capital for the 16 projects currently under execution, some of which have been hit by delays where payment was expected sooner and it will instead come later. 
The Rights Offering, coming on top of another Rights Offering and distribution of shares a year ago as the company was cast away by separated from its erstwhile parent Sembcorp Industries (SCI SP) seemed to upset shareholders who did not understand why a second large offering in a year was needed. The simple answer was that last year, the net capital raise was minimal. It was primarily designed to generate proceeds to be able to pay back a large loan extended by its parent before the split. This year it is about survival.  
As I noted then, it was important to read the Trading and Liquidity Update. The big points are:


Workers are scarce. Costs are up. There are supply constraints because of covid-19. Foreign workers who left can't come back. Relative Singapore success in fighting covid early on raised labor costs locally. It is tough to get new workers and new covid-19 measures introduced in May 2021 won't make it easier. 
Projects are delayed. Cash Flows are delayed. In particular, the delivery of two drillships to Transocean has been deferred from FY21/22 to FY2023 and later, delaying S$610mm in cash flow.
The company needs to optimize cost structure
Group turnover this year has been lower than expected. 
The group needs to raise money to get comfort on ability to complete existing contract base.
The company is pivoting to renewables and clean energy solutions.

The company needs money for all this. And a Rights Issue would provide certainty and immediacy.
The Securities Investors Association (Singapore), which has the general reputation of standing up to companies which do deals where retail investors are inconvenienced, came out with a press release with questions on 15 July which SMM answered on 19 July.  The company got its Approval in Principle in early August from the SGX. SIAS sponsored a virtual dialogue on 6 August. There was an update on the 18th of August from the company, a further very late-in-the-day Q&amp;A published on 23 August in the morning before the EGM, the EGM was held yesterday, the Rights Offering was approved, and...
...Today after the close, we have an announcement of the Rights Trading Period (31 Aug - 8 Sep), the Exercise Period (31 Aug - 14 Sep) and Pay Date (22 Sep) along with a re-delivery of all the documents from late June and early August (Announcement, Media Release, Presentation, and Trading and Liquidity Update).
24 August was the last day to trade WITH rights. 25 August is the first day to trade ex-rights.
There is strategy involved. 
Much more below the fold.


Sembcorp Marine Goes Ex-Rights - Strategy From Here

Last Week in Event SPACE: Sembcorp, Milton, Toshiba, Dah Sing Bank, WH Group, 51job, Port Congestion

Singapore

Seatrium Ltd offers engineering solutions for the offshore, marine, and energy industries. The Company provides rigs and floaters, repairs and upgrades, offshore platforms, and specialized shipbuilding. Seatrium serves customers worldwide.

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Seatrium (STM SP)

Sembcorp Marine Rights Done - The MGO Option It Is

Sembcorp Marine Rights have been subscribed and allocated. <75% of non-Temasek shareholders took up their rights (Excess pro-rated at 47.1%). Now...

Travis Lundy

One More Day To Trade Sembcorp Marine Rights, Harvest the Spread, or Buy The MGO Option

Last Day+ for the Sembcorp Marine Rights - Replacement Trade for long-only/passive investors, and MGO option for arbs/events. There is some...

Travis Lundy

Last Week in Event SPACE: Sembcorp, CK Hutch, Prosus/Naspers, Z Energy, Milton, China Logistics

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Sembcorp Marine Goes Ex-Rights - Strategy From Here

Sembcorp Marine goes ex-rights on 25 August. The rights start trading on 31 August. There could be trades to do here for long-only investors, but...

Travis Lundy

Last Week in Event SPACE: Sembcorp, Milton, Toshiba, Dah Sing Bank, WH Group, 51job, Port Congestion

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

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