Wednesday, January 20, 2016

SMM

SMM: (S$1.57) Potential privatisation or injection of funds by parent SCI?
Sembcorp Marine (SMM) surged to a high of $1.60 (+8.1%) in early trading after a Business Times article floated the idea of that parent Sembcorp Industries (SCI) may inject funds or take it private.

SCI owns 61% of SMM, which has been plagued by a dearth if rig orders and contract cancellations amid plunging oil prices. The group is also exposed to seven drillships ordered by near bankrupt Stet Brazil, which has deferred progress payments since Nov '14, and is at risk of writing off those assets worth US$4.8b.

This has resulted in strained cash flows for SMM and led to questions over the group's firm's ability to survive in a prolonged industry downturn.

Analysts contend that SCI, which owns a 61% stake, could be better off selling SMM and focusing on its profitable utilities business. Rival Keppel Corp is touted as a natural buyer and merger candidate.

Based on a hypothetical scenario, Keppel could buy over SMM for $3.3b (market cap) and sell its infrastructure business (including KIT) to SCI for $2.9b and meet the shortfall through debt.

SMM is currently trading at 1.09x P/B, quite similar to levels during the 1998 regional financial crisis when crude oil was trading below US$20 a barrel.

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