Sembcorp Industries Limited’s Latest Moves Hints Towards An Oil-Free Future

In the past three weeks, Sembcorp Industries Limited (SGX: U96) made two moves that hints towards how its future could look.

The conglomerate’s business can be divided into three major parts, namely utilities, marine and urban development. For the utilities segment, Sembcorp Industries provides energy through its gas-fired plants, coal-fired plants, or via renewable energy and energy from waste (EfW). For 2016, the bulk of Sembcorp Industries energy generation came from the first two sources.

But if its latest moves are any indication, Sembcorp Industries could be making a big push into renewable energy.  

Pushing into the future

At the end of last year, Sembcorp Industries had a 68.7% stake in Sembcorp Green Infra, an Indian-based subsidiary with close to 1,200 megawatts of wind and solar energy assets.

On 17 August 2017, the conglomerate moved to increase its stake to 72% by subscribing to a rights issue. Then, on 31 August 2017, Sembcorp Industries made a move to secure the rest of the shares, and take a full ownership of the subsidiary. The remaining shares were acquired from the IDFC Private Equity Fund III for about S$301 million.

In announcing the deal, Sembcorp Industries chief Neil McGregor said:

“Buying IDFC’s stake in SGI reaffirms Sembcorp’s commitment to a long-term presence in India. The deal will allow us to drive SGI’s growth as the 100% owner, and increase our investment in a wind and solar generation portfolio that strongly complements our thermal power assets in the country. Strengthening our investment in renewables will also help us stay abreast of advances in greener power generation, and will enable us to deliver electricity to our customers in an increasingly sustainable manner.”

The deal might have some significance, given McGregor’s comments in the first quarter this year.

The strategic view

McGregor took over the reins on 1 April 2017. The company launched a strategic review soon after, saying that the process would take up to six months. In the first-quarter earnings briefing, McGregor provided some context on its focus:   

“As we embark on this review, three words come to mind, in terms of my focus, as we position Sembcorp for the future. They are performance, sustainability and value creation. As I said earlier, we face a challenging macro environment, with rapidly changing market dynamics.”

More importantly, McGregor has his eye on what the conglomerates business model for the future:

“So we have to leave that to a strategic review and that’s something that we will have all options on the table in terms of looking at the kinds of businesses that we’re in, what our business model is for the future, and exactly what sort of trends are coming through and how do we best position the company given that we have the position now, and where do we move to in the future?”

At the moment, it’s too early to know what Sembcorp Industries will look like in the future. We will have to wait for the strategic review to be concluded before we can draw our own conclusions.

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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.