Sembcorp Industries poised for S$107m gain from Salalah listing

As SCI divests 20% of its stake.

SCI currently owns a 60% stake in Sembcorp Salalh, but is required to dispose 20%, which according to OCBC calculations, will likely net SCI a S$36m divestment gain and a S$73m revaluation gain from the remaining 40% stake -- an estimated S$109m booked gain from the Salalah listing.

Here's the complete analysis from OCBC:

Salalah IPO at S$5.17/share. SCI announced that its Oman JV, Sembcorp Salalah Power & Water Co will be listing the Salalah Independent Power and Water Plant (Salalah IWPP) on the Muscat Securities Market on Aug 28, 2013. Sembcorp Salalah will offer 33.41m existing shares, representing 35% of share capital. The shares will be priced at OMR1.59 (approx.S$5.17) per share. The IPO is expected to raise around OMR53m (approx. S$172.2m).

SCI to pare stake to 40%. SCI currently owns 60% stake of Sembcorp Salalah. SCI is required to dispose 20% stake for this IPO. Post listing, Sembcorp will hold a 40% stake in Sembcorp Salalah. Based on 25% equity for the US$1b investment in Sembcorp Salalah, we estimated that SCI cost would be approximately S$188m.

Potential gain of S$109m or 7 Scts/share. Based on Salalah IWPP guided market cap of OMR152m, we estimated that SCI will record 1) S$36m divestment gain from sale of 20% stake and 2) revaluation gain of S$73m for its remaining 40% stake. In total, SCI can look to book S$109m from this exercise.

SOTP raised to S$5.60, upgrade to Buy. We are leaving our earnings forecast unchanged in the absence of financial details. However, as we revalue SCI’s 60% stake in Salalah to its potential market value, our SOTP is lifted to S$5.60. Hence, upgrade to Buy for close to 14% potential upside.

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