The Edge Singapore  Published on Fri, Jun 25, 2021

Sembcorp Marine (SCM) undoubtedly fell below supports and the sudden surge in volume depicts, of course, layers of supply-sellers. The long black candle, the close near the low, and the sudden downturn in indicators depict a rush to the exit.

On June 24, SCM announced a 3-for-2 rights issue at 8 cents per rights share representing a discount of 35.7% to the theoretical ex-rights price or TERP of 12.4 cents. The rights issue is to raise $1.5 billion and the rights price is at a discount of 49.2% to pro forma of NTA of 15.8 cents. The rights issue requires shareholder approval as it is above what the general mandate stipulates.

SCM’s management has reiterated that the proceeds will be used for working capital and general corporate purposes including debt servicing. Management also repeated that the rights issue is not related to a non-binding memorandum of understanding (MOU) with Keppel Corp to set up a new combined entity to hold their offshore and marine legacy assets which was announced on the same day.

“Sembcorp Marine’s shareholders will hold shares in the Combined Entity, while Keppel will receive shares in the Combined Entity and a cash consideration of up to $500 million (or a cash component with the economic equivalent effect),” a joint Keppel Corp-SCM press release says. Surely the $500 million given to Keppel from the combined entity emanates from SCM? At any rate the MOU is non-binding.

The SCM rights issue has come around seven short months after an initial rights issue to raise $2.1 billion in August and Sept 2020. Of the amount raised, $1.1 billion was used to repay Sembcorp Industries which then was demerged from SCM.

The SCM rights coupled with a recent Singapore Airlines fund raising which was not fully subscribed has taken its toll on the market. Interestingly, Singapore Telecommunications and Starhub appear to be hovering near 2021 lows with both under pressure as well.

Hence, while Keppel benefits, and its share price rebounded, the move was tepid, suggesting that the selldown in SCM has affected sentiment in general. Keppel ended June 25 at $5.40, an immediate resistance level. The pattern was a doji, suggesting the absence of demand-buying. As a result, the near term range could be narrow as uncertainty grips prices.

Although the Straits Times Index rebounded on Friday, June 25, it fell 19 points week-on-week. Directional movement indicators appear somewhat weak. ADX has turned up and the DIs are negatively placed. Quarterly momentum is relatively neutral. The index fell below its 50-day moving average about two weeks ago, and the moving average – currently at 3,158 – has turned down. The STI needs to break above this level to regain up-momentum. The 100-day, currently at 3,104 provides immediate support.