SembCorp Marine Ltd Disposes its Stake in Cosco Shipyard Group: What Investors Should Know

On Tuesday, SembCorp Marine Ltd (SGX: S51) announced that it will be shedding its 30% stake in Cosco Shipyard Group (CSG).

The rig builder said that it entered into a sales and purchase agreement with China Ocean Shipping (Group) Company to dispose its existing stake. If the transaction goes through, SembCorp Marine will have no further direct ownership of CSG. However, SembCorp Marine still owns 4.98% of Cosco Corporation (Singapore) Limited (SGX: F83) which in turn has a 51% equity interest in CSG.

Here’re some things investors should know about the deal for CSG.

  1. For a little background, CSG is a shipbuilding and ship repair company based out of China. CSG owns six shipyards that are located in the key coastal cities. SembCorp Marine acquired a 30% stake in 2004.
  2. The deal in consideration is worth RMB 1,059.23 million or approximately S$220.7 million. The sale will depend upon approvals from Chinese regulatory authorities, internal approvals and the issuance of a new Foreign-Investment Enterprise Certificate which is expected to occur by 31 December 2016.
  3. SembCorp Marine gave its reasons for the disposal as part of the announcement. It said that CSG is no longer a strategic investment or a core asset of the group. It also said that the disposal will not affect its main businesses. SembCorp Marine also said that the proceeds will be used for working capital needs.
  4. CSG shares have a carrying value of S$180.1 million as of 30 September 2016. It represents around 7.2% of the group’s total net assets. For another context, SembCorp Marine had a market capitalisation of $2.85 billion on 14 November 2016.

As of 30 September 2016, SembCorp Marine had $1.5 billion in cash and equivalents and $4.1 billion in borrowings. SembCorp Marine’s net gearing was 1.03 times.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.