Jeffrey Tan Published on Fri, Jul 02, 2021 

Slightly over a year ago, conglomerate Sembcorp Industries shook the market when it announced that Sembcorp Marine (SembMarine) will cease to be its 61%-owned subsidiary.

For many years, the offshore services provider was the crown jewel of Sembcorp when global demand for oil surged during the pre-GFC boom. But the persistent oil downturn — since mid-2014 — had worn off Sembcorp’s patience in the hope that SembMarine would turn around.

The demerger was undertaken together with a recapitalisation exercise of SembMarine. The offshore services provider successfully raised $2.1 billion from an issuance of five rights shares for every one Sembmarine share held at a rights issue price of 20 cents a share.

Sembcorp subscribed to $1.5 billion of rights shares, which were used to offset the $1.5 billion outstanding under its subordinated loan extended to SembMarine. The remaining $600 million was subscribed by Temasek Holdings, the parent company of Sembcorp, via its wholly owned subsidiary Startree Investments.

Upon completion of the rights issue, Sembcorp hived off its stake in the recapitalised SembMarine via a distribution in specie to the former’s shareholders. Sembcorp shareholders received 4.911 SembMarine shares for every 100 Sembcorp shares owned, with no cash outlay required.

Temasek is now a direct and controlling shareholder of Sembmarine as it owns about 43% in the latter.

At a joint briefing on June 12 last year, then-Sembcorp group president and CEO Neil McGregor said that the demerger and recapitalisation exercises were undertaken in response to two challenges.

For one, the Covid-19 pandemic has reduced economic activity and led to an unprecedented destruction of oil demand.

“Essentially, the outlook for energy has changed. That requires both companies to look at adapting to more sustainable business models,” McGregor said.