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42 days to decide

■ As expected and stipulated in the offer document, with a post-rights allotment stake of 46.6%, Temasek triggers a conditional MGO for MI stake at S$0.08.
■ If Temasek’s concert parties receive more offers that result in them acquiring more than 50% of SMM, MGO would become unconditional.
■ Temasek intends to keep SMM listed. But if free float falls below 10% (low likelihood), it would have to delist SMM under Rule 723 of listing manual.
■ Closing date of the exercise will be in Nov, or 42 days from 22 Sep’s formal announcement of MGO. Reiterate Hold with unchanged TP of S$0.093.

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SMM to remain listed

● Startree, an indirect wholly-owned subsidiary of Temasek, is making a mandatory general offer (MGO) as its shareholding in Sembcorp Marine increased by more than 1% as a result of Startree’s participation in SMM’s rights issue. The offer price is S$0.08 per share in cash (in line with the rights issue price) and is in compliance with the requirements of the MGO code where any person who, together with its concert
parties, holds between 30% and 50% of the voting rights of a company and such person, or any of its concert parties, acquires additional shares carrying more than 1% of the voting rights of the company in any six-month period is required to make a MGO.

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● Startree’s current intention is to maintain the listing status of SMM. However, if the free float falls below 10% as a result of the exercise, Rule 723 sets in for delisting. We think the likelihood of this happening is also low for now.

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What’s the likelihood of shareholders accepting/rejecting offer?

● We believe the likelihood of shareholders accepting the offer at S$0.08 could be low, unless there is a correction in the overall equity market. In addition, the free float of c.53.4% provides some buffer in the event of an irrational sell-down.

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● Based on the better-than-expected response from MI with the rights issue oversubscribed by 1.18 times, we believe there is some confidence and hope in SMM’s performance going forward, likely due to shareholders’ (Temasek) credibility. SMM is committed to improve its operating and financial performance via cost optimisation, among other things. Finally, the potential to merge with Keppel Offshore & Marine (KOM) means a mega yard is in the making, with a potential combined order book of S$7.5bn (1H21: SMM: S$1.78bn, KEP: S$5.7bn). Recall that the combined earnings of KOM and SMM in the peak of the oil price cycle were S$1.9bn in 2010.

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42 days to decide

● The indicative date for the closing of MGO will be about 42 days form 22 Sep. Key dates include: 1) electronic dissemination of offer document (6-13 Oct), 2) electronic dissemination of SMM’s circular (within 14 days after the dispatch of offer document), and 3) closing date of MGO (28 days after the posting of the offer document).

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● We reiterate Hold with an unchanged TP of S$0.09, still based on 0.7x CY21F P/BV. Temasek’s support and the potential merger with Keppel O&M are upside risks. Key downside risks: impairment of assets (Brazilian and Singapore yards), cost overruns and another round of fund-raising.