Temasek steps in to support loss-making Sembcorp Marine in its plan to raise S$2.1 billion

It was reported yesterday (8 Jun) that Temasek Holdings has stepped in to support a S$2.1 billion rights issue by Sembcorp Marine in its attempt to help the loss-making rig-builder.

Following the deal, the money losing Sembcorp Marine plans to demerge from its parent company Sembcorp Industries. Conglomerate Sembcorp Industries, which owns 61% of Sembcorp Marine, said it planned to demerge the marine company by distributing its stake to shareholders as dividends after the rights issue.

“This recapitalisation will improve our cash position, fund ongoing financial commitments, strengthen our balance sheet and ensure long-term viability,” said Sembcorp Marine CEO Wong Weng Sun.

An analyst at KGI Securities noted, “The end result is that Temasek will eventually be the biggest direct shareholder of Sembcorp Marine.”

In the deal, Temasek will subscribe for up to S$600 million of the rights plan.

Temasek, who is also the biggest shareholder in Sembcorp Industries with a stake of just under 50%, will end up with a holding of 29.9%-58% in Sembcorp Marine, depending on final subscription levels.

“We recognise these are difficult times and the companies are operating in an uncertain and volatile world,” said Nagi Hamiyeh, joint head of Temasek’s investment group.

The five-for-one rights issue is priced at S$0.20 per rights share, or a 76% discount to the pre-deal close of S$0.85. Sembcorp Marine was last valued at about S$1.8 billion.

Last year, Temasek offered to buy control of conglomerate Keppel Corp, whose businesses include rig-building, in a S$4.1 billion deal.

Sembcorp Marine and Keppel involved in corruption probes in Brazil

In Feb this year, the ex-president of Sembcorp Marine’s Brazil unit, Martin Cheah Kok Choon, was charged by the Public Prosecutor’s Office in Brazil for money laundering and corruption.

The charges were in connection with certain drilling rig construction contracts entered into by Sembcorp Marine’s subsidiaries in Brazil back in 2012.

In addition, a Brazilian by the name of Guilherme Esteves de Jesus, was also charged with money laundering. Companies connected to him were engaged by Sembcorp Marine’s subsidiaries as consultants in Brazil.

Last July, Sembcorp Marine filed a suspicious transaction report with Singapore’s Commercial Affairs Department (CAD) after revealing that its yard in Brazil was raided and that Cheah was involved in a corruption probe by Brazilian authorities.

Sete Brasil, the client which Sembcorp Marine was supposed to build drillships for, was caught up in a major corruption investigation by the Brazilian government under Operation Car Wash back in 2014. According to the Operation Car Wash task force, the investigations implicated administrative members of Brazilian state-owned oil company Petrobras, politicians from Brazil’s largest parties, presidents of the Chamber of Deputies and the Federal Senate, state governors, and businessmen from large Brazilian companies.

After Sete Brasil was investigated, it filed for bankruptcy protection in 2016. Last October, Sembcorp Marine reached settlement deals with Sete Brasil for drillship and rig-building contracts that were frozen after it filed for bankruptcy.

Sembcorp Marine had seven drillship contracts with Sete Brasil worth a total US$5.6 billion. Of this amount, it received S$2.7 billion (US$1.9 billion) from Sete Brasil before payments stopped in November 2014.

Keppel was also involved in corruption probe under Operation Car Wash in Brazil. In fact, it was found that Keppel O&M, a subsidiary of Keppel Corporation, paid US$55 million in bribes, from 2001 to 2014, to secure contracts with Brazilian state-owned oil giant Petrobras.

Keppel reached a global resolution with law enforcement agencies in the US, Brazil and Singapore by paying US$422.2 million (S$554 million) in fines. In 2018, several key executives of Keppel O&M were also arrested by Singapore’s CPIB (‘Key executives of Keppel Offshore & Marine arrested to assist in investigation by CPIB‘).