Commentary: Sembmarine offer: mandatory for Temasek but not for shareholders

Date: October 14, 2021

First published in Business Times on 14 October 2021

Based on feedback received by the Securities Investors Association (Singapore) or Sias, there is confusion and misunderstanding within some segments of the retail investing public over Temasek Holdings’ mandatory conditional general offer to acquire all the issued and paid-up ordinary shares in Sembcorp Marine (Sembmarine).

Some retail investors think that whenever a takeover offer is tabled, it must be at a premium to the share price at the time in order to make sense. Since Sembmarine’s shares traded just above S$0.08 on Sep 22 when the offer was announced, they are wondering why Temasek has been allowed to offer only S$0.08.

Others have asked if the word “mandatory” means that they are compelled by law to accept the offer.

Here is some background:

On Jun 24, Sembmarine announced a 3-for-2 rights issue at S$0.08 per share to raise S$1.5 billion.

Temasek, through its wholly owned subsidiary Startree, owned 42.6 per cent of Sembmarine when the rights issue was announced. Startree said it would take up its pro rata rights entitlement as well as some of the excess rights.

The exercise ended with Startree being allocated 9.3 billion rights shares, which then raised its stake by 4 per cent to 46.6 per cent.

Rule 14.1 of the Singapore Take-over Code and Mergers states that if an entity controls 30 to 50 per cent of a company, then the controlling entity must make a mandatory general offer if it raises its interest in the company by more than 1 per cent. The offer price cannot be less than the highest price paid during the six months preceding the offer.

The word “mandatory” refers to Startree’s obligation to comply with the code and not a legal obligation on the part of shareholders to accept the offer.

Temasek’s offer is also conditional on Temasek’s stake crossing 50 per cent when the offer closes.

If the valid acceptances received are such that Temasek’s stake is less than or equal to 50 per cent, the offer will lapse. All shares tendered in acceptance of the offer will be returned to shareholders. The offer closes at 5.30pm on Nov 3.

Shareholders have three options:

First, they can hang on to their shares and do nothing.

Temasek has said it intends for Sembmarine to remain listed, but it has reserved the right to change this stance depending on the level of acceptances it receives and other factors.

This should be the option for shareholders who expect a recovery in the company’s fortunes.

On the day the rights issue was announced in June, Sembmarine and Keppel Corp also announced the signing of a non-binding memorandum of understanding to explore a merger between Sembmarine and Keppel Offshore & Marine (Keppel O&M).

But there is no guarantee this deal will take place.

Second, they can sell either all or part of their shares to Temasek for S$0.08 each.

Third, they can sell their shares in the open market.

What shareholders do would depend on their outlook for Sembmarine.

• The writer is David Gerald, founder, president and CEO of the Securities Investors Association (Singapore)