Sembcorp Industries is providing Singapore’s offshore rig builder Sembcorp Marine with a five-year subordinated loan facility of S$2 billion ($1.5 billion). The loan will strengthen Sembcorp Marine’s financial position amidst the current downturn in the global offshore and marine industry, the company has said.

According to its statement on Friday, Sembcorp Marine will be using the subordinated loan to retire approximately S$1.5 billion of borrowings, and the balance S$500 million for working capital and general corporate purposes.

Sembcorp Industries, Sembcorp Marine’s largest shareholder, will issue S$1.5 billion of bonds to DBS Bank as sole lead manager and initial purchaser through a private placement. The investors of the bonds include Temasek.

Sembcorp Industries will utilize the proceeds from the bonds to fund S$1.5 billion of the subordinated loan (which will be interest-bearing) to Sembcorp Marine, with the balance S$500 million to be funded by Sembcorp Industries’ existing available resources and facilities.

Assuming the S$2 billion is fully drawn as at March 31, 2019, Sembcorp Group’s gross debt-to-capitalization ratio would increase from 56% to 58%.

Sembcorp Marine said that, since 2009, it has made substantial strategic investments in yard and engineering capabilities, and acquired new technologies which allow it to offer diversified solutions across the offshore, marine and energy industries.

The company noted that for the 15 years before the current industry downturn, which started in 2014, Sembcorp Marine delivered strong and consistent performance. It was profitable every year with a cumulative net profit of approximately S$5.4 billion and distributed cumulative dividends of about S$3.5 billion.

However, Sembcorp Marine said that its current financial performance and position had been affected by the prolonged and severe downturn of the global offshore and marine industry.

“While the offshore and marine industry has shown signs of recovery, such recovery is expected to be gradual and sustained new orders for Sembcorp Marine will take time to materialize. Working capital needs have also increased, especially for major engineering, procurement, and construction projects. Sembcorp Industries and Sembcorp Marine believe that this financing will strengthen Sembcorp Marine, a key subsidiary of Sembcorp Industries, and better position it for the eventual recovery of the industry,” Sembcor Marine explained.

The respective board of directors of Sembcorp Industries and Sembcorp Marine have considered a wide range of options and decided that the proposed financing option would be in the best interests of the companies.