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SCMP Reporter

Government-linked Singapore Technologies Industrial Corp (STIC) and Sembawang - two of Singapore's largest conglomerates - will merge to form a leading industrial group in the region.

 The new company, SembCorp Industries, will focus on infrastructure, marine engineering, information technology and lifestyle.

 Other non-core interests may be axed as part of a rationalisation and cost-cutting drive.

 The merger is expected to be completed by September after regulatory approval. The new company will have a work force of more than 16,700.

 A joint statement said that with a combined order book of S$2.4 billion (about HK$11.1 billion), the new company would have 'the largest civil and building construction business' in Southeast Asia.

 On a pro-forma basis, SembCorp would have had revenue of $3.3 billion last year, which would have made it the 12th-largest on the Singapore Stock Exchange. Its pro-forma net profit would have been $92.4 million.

 STIC's parent, Singapore Technologies, is to be SembCorp's largest shareholder, with a 45 per cent stake. SembCorp's parent, state investment arm Temasek Holdings, is to hold 14 per cent of the new company.

 STIC and Sembawang are to be delisted and replaced by SembCorp on the Singapore exchange. Their seven subsidiaries will retain their listings.

 Sembawang chairman Philip Yeo, who heads the government's investment-promoting Economic Development Board, will become chairman of the merged entity.

 'Both STIC and Sembawang have complementary strengths. Where there are overlaps, the resources will be combined and rationalised. As a result, we will be able to enjoy economies of scale and improved efficiency,' said Tay Siew Choon, STIC president and chief executive who will be SembCorp's managing director and deputy chief executive.

 SembCorp will own five industrial parks across Asia, among them one in Suzhou and another in Wuxi, as well as the region's largest marine-repair yard.

 SembCorp will also have substantial land and sea logistics and transport operations, a portfolio of nine hotels and a host of lifestyle and information technology interests.

  The companies say the rationale for the merger is to enable them to compete better against global giants in exploiting the huge amount of infrastructure spending expected in Asia in coming years.

 'Together as one, we will have the resources and financial strength to compete for larger projects,' Mr Tay said.

 'The combination of our core competencies can also lead to greater synergy.'  Analysts agree that the companies enjoy supplementary strengths.

 But they point out that Sembawang has suffered some disappointments in recent years as it has expanded away from core businesses. It has a relatively high debt-to-equity ratio, too.

 Chia Yew Boon, head of research at Santander Investments Securities, said: 'It is somewhat unwieldy and needs to slim down.'  STIC, generally viewed as the stronger of the companies, has also had some setbacks with industrial parks.

 An analyst at a foreign brokerage said the merger represents little more than a bailout for debt-laden Sembawang. He said this was not the first time the government had effectively stepped in to help such companies.

 Consequently, he said the success of SembCorp would depend largely on STIC's ability to bring the two companies together in its four areas of operation.

 'At this point, you have got to make a judgment as to whether STIC can restructure the group,' he said.



Sembawang plans tie-up with STIC