SCI faces shareholder backlash if SembMarine privatisation pushes through: OCBC

It simply doesn’t make sense, analysts say.

A Sembcorp Industries-led privatisation of struggling Sembcorp Marine will simply not go down well with both companies’ shareholders, according to a report by OCBC.

OCBC said that SCI shareholders will not be pleased with such a deal because there still no end in sight for SembMarine’s offshore woes, particularly as the fate of seven Sete Brasil drillships still hang in the balance.

SCI may also have a tough time convincing SembMarine shareholders to relinquish their units, particularly as the stock’s value has dropped drastically in past months.

And although SCI had already attempted to privatize SembMarine in 2002, OCBC said that circumstances then and now are rather different.

“SMM then had a strong financial position, and was in a net cash position. The outlook for the rig building sector was also looking brighter and more promising. At S$1.48, SMM is now trading at 1.0x book, below the 1.6x book level at which SCI tried to privatise SMM then. There is also concern that potential provisions may erode the book value further in following quarters,” OCBC said.

“We believe this move only makes sense for SCI if the group believes in the long-term potential of SMM, and sees the current plunge in price as an opportunity. Still, this may not be well-received by SCI shareholders, at least for now,” the report noted.