Books have already opened for the deal, which represents 11.5% of the company's enlarged share capital, and has an additional 27.75 million share greenshoe. Sembcorp itself is currently 57.83% government-owned, of which Singapore Technologies owns 44.4% and Temasek 13.43%.
At a current share price of S$1.62 ($0.91), the company will raise S$299.7 million ($169.12 million). However, since the announcement of the deal on March 1, coinciding with the release of annual results, Sembcorp’s share price has fallen from S$1.72, leaving the stock down 3.53% on the year.
Its decision to proceed in the face of choppy global markets and domestic weakness has, therefore, surprised some observers. As one comments: "The share price has tanked since the company announced the deal and it's hard to understand why they’re doing a global roadshow at all. This just gives accounts time to short the stock and buy the new offering at a discount. For a deal of this size, it would have made much more sense to do a bought deal under an accelerated global bookbuild."
Others, however, point out that the stock has actually outperformed the domestic market 30% year to date, with the Straits Times Index down 7.93% to Friday's 1926 close. It hit a 52 week low the day previously at 1779.26.
One observer replies: "Because the roadshow is so long, investors have no idea what level pricing will come at and we haven't seen any selling from our side.
"What is important," he adds, "is that the company should have any opportunity to promote its tremendous growth prospects. At the moment, the market doesn't seem to realize just how quickly return on equity will be pushed up by the profits coming on stream from the company's operations on Jurong Island. We think this is one of the most exciting stories in the whole of Asia and it's also an ideal time for management to be on the road, since accounts have not marketed the Singapore equity story for some time."
The government has been a keen promoter of the largely petrochemicals complex being developed on Jurong Island, which presently houses 50 multinationals and has ambitions to site 150 within the next five years. Sembcorp has, what observers describe as, a quasi monopoly supplying water, gas, steam, and soon, power to the various plants. Last year, this was said to have contributed S$11 million out of total net profits amounting to S$131 million, but is set to be a big earnings driver going forwards.
Sembcorp has four key areas of operation comprising engineering and construction, integrated logistics, marine engineering and utilities services. The company's logistics operations averaged two-year growth of 772% to the end of 1999 and now have a much broader reach, as the company seeks to consolidate its position as one of the world's largest supply chain management companies.
Analysts, however, have a completely mixed view, with no consensus buy, hold, or sell recommendations. Partly, this is said to result from the fact that the company recently announced that it was writing S$300 million to extraordinary provisions.
"A number reacted quite strongly to the announcement, because the company has made a habit of doing this in past," says one. "Fund managers sometimes get fed up with giving the company money, letting it test out a new idea and then if it doesn't like it, writing it off against its non-core assets. The good thing is that from next year, Singaporean companies won't be able to write provisions below the line anymore."
But as HSBC's Winnifred Heap says: "We like Sembcorp and our only concern is that the engineering and construction side might suffer from any economic slowdown. On the other hand, we favour the company’s utility services operations and what it has been doing on Jurong Island."
Sembcorp intends to use proceeds from the share issue to fund a bid for one of the three power plants being put up for auction by Temasek over the next couple of months. Two of the three - Power Senoko and PowerSeraya - were previously owned by Singapore Power, while the third Tuas Power, was held by Temasek itself.