What do you do if you have Sembcorp Marine Shares?

The recent announcement to demerge from its parent company Sembcorp Industries made waves in the Singapore Investor Community. #SCM #sembcorpmarine #SCI

There were many blogs reporting on how the recapitalisation would happen. All these opinions and advice were focus on the the demerger and speculation on whether SCM would merge with another shipyard. And there were rumours that privatisation were on the cards.

What if you currently have 10 lots of SCM shares?

What would you do when the rights issue goes through?

Here are 3 strategies to focus on:

1. 1. Exercise to buy the Rights Issue shares
2. 2. Sell all at market value
3. 3. Sell partial at market value and buy with remaining Rights Issue shares with the cash of the sold Rights Issue shares.

Exercise to buy all Rights Issue Shares

It's a no brainer. If SCM is offering $0.20 per share for the Rights Issue Shares, you should buy in.

With 10 existing lots, you are entitled to 50 lots and that would calculate to 50,000 x $0.20 = $10,000. You would have to cough up $10K to buy the 50 lots.

Would I advise to buy all? A strong indicator is SIA who did their Rights Issue Exercise a month ago clearly indicates investors have confidence in Singapore Blue Chip Stocks that are strongly backed by Temasek Holdings.

SIA offered $3 per share for the rights issue. The market price hovered around $3.60 to $3.80. It never drop below $3 because there are enough retail investors who believe in the company and there is also Temasek Holdings offering to buy up any remaining stock. For the SIA stockholder, it is a win-win for them.

Coming back to the SCM Rights Issue, we should expect the exercise to start in September. To be offered $0.20 per share for 1 currently owned to 5 new shares, it is a good option to consider buying all the Rights Issue shares.

When the Rights Issue starts, i would assume market price would hover about the $0.50 range. If it holds up, you can consider to sell the newly bought shares at a later time frame. However, the best advice will be to hold on forever and long enough for your retirement.

OK, SGD10,000 is a lot of cash to cough up but you can consider using CPF to buy if funds are tight. However, I would advise using cash because CPF will have accured interest after using the money to invest.

Sell all at Market Value

This is also a viable option to sell all 50 lots at market price. Assuming the price holds at $0.50 per share, we can get a tidy sum of SGD 25,000. That is a pretty nice pile of cash to hold on during these difficult times.

Given how investors reacted to SIA rights issue exercise, I would buy all 50 lots and observe the market in a few months' time.

Sell partial at market value and buy with remaining Rights Issue shares with the cash of the sold Rights Issue shares.

If you don't want to use CPF and really have ZERO cash, this method will be an alternative. Let's say we have 50 lots. We can sell 15 lots at $0.50 for $7500 and use this cash to buy the remaining 35 lots at $0.20 for $7000. You would have $500 cash from this method.

Summary

If I were a shareholder, option 1 would be my strategy since we have a good example of the SIA Rights Issue exercise. Otherwise the other 2 options are possible ways to raise cash during these difficult times.

~tschuss