My Strategy For Sembcorp Marine Rights

I have earlier explained the 5 reasons why I would subscribe to the Sembcorp Marine (SMM) Rights issue even though this company seems to be bleeding non-stop and showing no visible signs of any turnaround. See post:

5 Reasons Why I Would Subscribe To Sembcorp Marine (SGX.S51) Rights? 

As the SMM rights will commence trading on 31 Aug 2021, it is important to decide on the plan of action now. Shareholders of SMM can sell off their entitled rights from 31 Aug 2021, 9am to 8 Sep 2021, 5pm, which is the last day of trading of SMM rights, if they do not wish to subscribe to the rights.

I have decided to subscribe to the rights by paying up through ATM before 9.30pm on 14 Sep 2021. Hence, I do not need to do anything to the rights during the trading period.

Now comes the financing part. Will I pump in capital from war chest to subscribe rights of Sembcorp Marine?

I am indeed reluctant to pump my hard-earned money into Sembcorp Marine for them to pay debts and burn away because investing in money burning business is against my philosophy. Hence I decided to sell off my small stakes of Sembcorp Marine entirely today to recycle funds.

I owned 11,800 shares of SMM and was entitled to 17,700 rights shares. If I subscribe to all of 17,700 rights shares at $0.08, I would need to cough up $1,416. However, by selling off all my SMM shares, I am able to raise $1,040 from its own equity, thereby requiring a small top up of $376, which can be offset by a small portion of dividends (free cash) collected this month. Even if I would to subscribe 20,000 shares (entitled 17,700 with excess 2,300), I need to cough up $560 instead of the original $1,416, significantly reducing my cash outlay with such strategy.

Great minds think alike and the share price of SMM continued to slide today to a low of $0.089 as many shareholders executed the same strategy,  anticipating the great possibility of SMM's share price continuing its drop closer to the rights price of $0.08. In the worst case scenario, its share price could even be lower than $0.08, which is when Temasek subsidiary, Startree will sweep up most of the excess rights shares since nobody with clear mind would pay more than the market price for the rights.

Right now, there are many scenarios for SMM to unfold in the short to mid-term. The first include an acquisition of/ merger with Keppel O&M from Keppel Corp after the rights exercise. The second could be a potential mandatory offer by Temasek subsidiary, Startree even before the acquisition of/merger with Keppel O&M due to Rule 14.1 of the Singapore Code on Takeover and Mergers. There are other speculations such as selling away the combined entity of SMM and Keppel O&M to foreign players after the rights exercise and done deal. We can only sit back, relax and watch the drama unfold as time goes by.

Thanks for reading. As always, stay safe and remain strong.

Thanks for reading,

Qiongster