Sembcorp Marine has defended its decision to undertake a heavily discounted rights issue after criticism from a local investor lobby group.

The struggling shipyard group plans to issue SGD1.5bn ($1.1bn) worth of new shares in a fundraiser backed by Singapore sovereign wealth fund Temasek Holdings and the city state’s largest bank, DBS.

“These are unprecedented times for Sembcorp Marine in its close to 60-year track record,” the company said in a regulatory filing.

“The challenges faced by the group are real and severe, and have lasted longer than anticipated due to the protracted effects from Covid-19.”

Sembcorp Marine said that if it did not take “decisive action” on multiple fronts, it could have ​“potentially serious consequences ​for all ​stakeholders”.

The Singapore-listed company said it was taking “concrete steps” to address the challenging operating environment and to “reposition the business”.

These include the proposed rights issue, continuous working capital management, development of a comprehensive performance improvement plan, and the strategic business transformation with an increasing focus on renewables and other green solutions.

Investor lobby group Securities Investor Association Singapore (SIAS) had asked Sembcorp Marine if it had explored other forms of fundraising, noting that the company had previously raised SGD 500m through sustainability-linked financial facilities.

Various financing options

Sembcorp Marine replied that its board of directors had considered “various financing options” and believed that an equity rights issue at this point was “the most optimal solution".

"The fully committed nature of the proposed rights issue means that the group and its stakeholders, including investors and customers, have the assurance that the group will raise approximately SGD 1.5bn that it critically requires," it said.

The company had previously completed an SGD 2.1bn rights issue in 2020, but the bulk of this — some SGD 1.5bn — was used to repay a loan from Sembcorp Industries following the demerger of the two companies.

Of the remaining SGD 600m net cash proceeds raised, half has already been used for working capital purposes.

“The remaining SGD 300m is now insufficient, as it has progressively become evident that the impact of Covid-19 and the industry downturn has been more protracted than originally anticipated,” Sembcorp Marine said.

Earlier in July, Sembcorp Marine warned that it expected to make significant provisions for increased costs in its upcoming first-half results due to the ongoing problems caused by Covid-19.

The company said the majority of the group’s projects had been delayed by at least 12 months since the onset of the virus in early 2020.

It said it had been “actively recruiting” additional skilled labour from non-traditional sources to complete its projects with the minimum of further delays.

But it added that these new recruitment costs were “more than twice” those of workers from its traditional sources, due to higher wages and pricey upfront Covid-19-related recruitment costs such as up to five weeks of quarantine in workers' home countries and Singapore.