SEMBCORP MARINE LTD€¦ · Goh Geok Ling (Chairman) 29 Tanjong Kling Road Tan Kwi Kin (Group...

CIRCULAR DATED 7 AUGUST 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.

If you are in any doubt as to the contents herein or as to the course of action you should take, youshould consult your stockbroker, bank manager, solicitor, accountant or other professional adviserimmediately.

If you have sold all your shares in SembCorp Marine Ltd, you should immediately forward thisCircular and the attached Proxy Form to the purchaser or transferee or to the bank, stockbroker orother agent through whom the sale was effected for onward transmission to the purchaser ortransferee.

The Singapore Exchange Securities Trading Limited assumes no responsibility for the correctness ofany of the statements made, reports contained or opinions expressed in this Circular.

SEMBCORP MARINE LTD (Incorporated in the Republic of Singapore)(Company Registration No.: 196300098Z)

CIRCULAR TO SHAREHOLDERS

in relation to

THE PROPOSED ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF SMOE PTE LTDAND SEMBAWANG BETHLEHEM PTE LTD INCLUDING SEMBAWANG BETHLEHEM PTE LTD’SPROPERTIES’ COMPRISING LAND LOTS 958C, 990X, 1002A, 1003K, 1004N, 1005X, 1006L,1007C, 1160L, 1161C, 1192C, 1209K, 1699V, 2205M, 2206W, 2473X and 3567M of MUKIM 13LOCATED AT THE JUNCTION OF ADMIRALTY ROAD EAST AND ADMIRALTY ROAD WEST(THE “COMBINED ACQUISITION”) FOR AN AGGREGATE AMOUNT PAYABLE OFS$183,734,000

Independent Financial Adviser to the Non-Interested Directors of SembCorp Marine Ltd

(Incorporated in the Republic of Singapore)(Company Registration No.: 200105040N)

IMPORTANT DATES AND TIMES

Last date and time for lodgment of Proxy Form : 21 August 2006 at 11.15 a.m.

Date and time of Extraordinary General Meeting : 23 August 2006 at 11.15 a.m (or as soonas the conclusion of the ExtraordinaryGeneral Meeting to approve the proposedacquisition of 110,400,000 ordinary sharesin the issued share capital of CoscoCorporation (Singapore) Limited to be heldat 11.00 a.m. on the same day and at thesame place)

Place of Extraordinary General Meeting : 29 Tanjong Kling RoadSingapore 628054

TABLE OF CONTENTS

DEFINITIONS.................................................................................................................................. 3

1. INTRODUCTION .................................................................................................................. 7

2. CHAPTER 9 OF THE LISTING MANUAL ............................................................................ 8

3. THE COMBINED ACQUISITION .......................................................................................... 10

4. INFORMATION ON SMOE .................................................................................................. 12

5. INFORMATION ON SEMBETH ............................................................................................ 18

6. RATIONALE FOR AND BENEFIT OF THE COMBINED ACQUISITION ............................ 21

7. FINANCIAL EFFECTS OF THE COMBINED ACQUISITION .............................................. 23

8. OPINION OF THE INDEPENDENT FINANCIAL ADVISOR ................................................ 24

9. INDEPENDENT VALUATION................................................................................................ 25

10. DISCLOSURE OF SHAREHOLDINGS ................................................................................ 25

11. AUDIT COMMITTEE’S STATEMENT .................................................................................. 26

12. DIRECTORS’ RECOMMENDATION .................................................................................... 26

13. SHAREHOLDER WHO WILL ABSTAIN FROM VOTING .................................................... 27

14. EXTRAORDINARY GENERAL MEETING .......................................................................... 27

15. ACTION TO BE TAKEN BY SHAREHOLDERS .................................................................. 27

16. LITIGATION .......................................................................................................................... 27

17. CONSENTS .......................................................................................................................... 28

18. DOCUMENTS FOR INSPECTION ...................................................................................... 28

19. DIRECTORS’ RESPONSIBILITY STATEMENT .................................................................. 28

APPENDIX I : LETTER FROM STIRLING COLEMAN CAPITAL LIMITED TO THE NON-INTERESTED DIRECTORS OF SEMBCORP MARINE LTD ................ 29

APPENDIX II : THE CBRE VALUATION REPORT .................................................................. 46

APPENDIX III : THE SALLMANNS VALUATION REPORT ...................................................... 66

NOTICE OF EXTRAORDINARY GENERAL MEETING ................................................................ 99

PROXY FORM

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DEFINITIONS

The following definitions shall apply throughout unless otherwise stated in this Circular:-

Companies

“CBRE” : CB Richard Ellis (Pte) Ltd, being the independentvaluer of the SemBeth Properties

“PT SMOE” : PT SMOE Indonesia

“Sallmanns” : Sallmanns (Far East) Ltd, being the independentvaluer of the SMOE business

“SCE” : SCE Pte Ltd

“SCI” : SembCorp Industries Ltd

“SCL” : Sembawang Corporation Limited

“SCM” or “Company” : SembCorp Marine Ltd

“SCM Group Companies” : individually, any of (i) SembCorp Marine Ltd and (ii)all subsidiaries of SembCorp Marine Ltd.

“SCU” : SembCorp Utilities Pte Ltd

“SemBeth” : Sembawang Bethlehem Pte Ltd

“SMOE” : SMOE Pte Ltd

“SMOE Group Companies” : SMOE and its subsidiaries, specifically thecompanies set out in section 4.2 of this Circular, and“SMOE Group Company” means any one of them

“SMOE Indonesia” : SMOE Indonesia Pte Ltd

“SSPL” : Sembawang Shipyard Pte Ltd

“Stirling Coleman” : Stirling Coleman Capital Limited, being theindependent financial adviser to the Non-InterestedDirectors in connection with the CombinedAcquisition

“Temasek” : Temasek Holdings (Private) Limited

General

“Audit Committee” : the audit committee of the Company as at the dateof this Circular, comprising Mr Tan Tew Han, Mr AjaibHaridass and Mr Ron Foo Siang Guan.

“Business Day” : a day (other than a Saturday, Sunday or gazettedpublic holiday in Singapore) on which commercialbanks are open for business in Singapore

“CBRE Valuation Report” : means the valuation report on the SemBethProperties prepared by CBRE as set out underAppendix II of this Circular

“CDP” : the Central Depository (Pte) Limited

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DEFINITIONS

“Combined Acquisition” : the SMOE Acquisition and SemBeth Acquisition

“Companies Act” : Companies Act, Chapter 50 of Singapore

“Completion” : completion of the proposed SMOE Acquisition andSemBeth Acquisition, as defined in the respectiveSale and Purchase Agreements

“Controlling Shareholder” : a person who:

(a) holds directly or indirectly 15% or more of thenominal amount of all voting Shares in theCompany (unless the SGX-ST determines thatsuch a person is not a Controlling Shareholderof the Company); or

(b) in fact exercises control over the Company

“Directors” : the directors of the Company as at the date of thisCircular

“EGM” : the extraordinary general meeting of the Company tobe convened, notice of which is given on page 99 ofthis Circular

“Excluded Projects” : all past projects secured by the SMOE GroupCompanies up to 31 December 2005

“FY” : financial year ended or ending 31 December

“Group” : the Company, its subsidiaries and associatedcompanies

“Latest Practicable Date” : 31 July 2006 being the latest practicable date priorto the printing of this Circular

“Listing Manual” : the Listing Manual of the SGX-ST

“Minority Shareholders” : Shareholders who are not, in relation to theCombined Acquisition, interested persons as definedunder Chapter 9 of the Listing Manual

Non-Interested Directors : the Directors, other than Mr Goh Geok Ling, Mr TanPheng Hock and Mr Tang Kin Fei who are not,whether directly or indirectly, interested in theCombined Acquisition

“Notice of EGM” : the notice of EGM as set out on page 99 of thisCircular

“NTA” : net tangible assets

“Ordinary Resolution” : the ordinary resolution as set out in the Notice ofEGM

“Proxy Form” : proxy form in respect of the EGM as set out in thisCircular

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DEFINITIONS

“Purchase Consideration” : S$183,734,000, being the aggregate amountpayable for the Combined Acquisition comprisingcash consideration of approximately S$66,751,000and the assumption of the net loan amount ofapproximately S$116,983,000

“Sale and Purchase Agreements” : the SMOE Sale and Purchase Agreement and theSemBeth Sale and Purchase Agreement and “Saleand Purchase Agreement” means any one of them

“Sallmanns Valuation Report” : means the valuation report on the SMOE businessprepared by Sallmanns as set out under Appendix IIIof this Circular

“Securities Account” : securities account maintained by a Depositor withthe CDP but not including securities sub-accountsmaintained with a Depository Agent

SemBeth Acquisition : the proposed acquisition by the Company from SCLof the entire issued share capital, representing72,380,000 ordinary shares of SemBeth, as at thedate of the SemBeth Sale and Purchase Agreement

“SemBeth Properties” : means the whole of Lots 958C, 990X, 1002A,1003K, 1004N, 1005X, 1006L, 1007C, 1192C,2205M, 2206W, 2473X, 3567M, 1160L, 1161C,1209K and 1699V of Mukim 13

“SemBeth Sale and Purchase Agreement” : means the sale and purchase agreement dated 13July 2006 entered into between SCL (as vendor) andSSPL (as purchaser) in connection with theSemBeth Acquisition

“SGX-ST” : Singapore Exchange Securities Trading Limited

“Shareholders” : registered holders of Shares except that where theregistered holder is the CDP, the term“Shareholders” shall, in relation to such Shares andwhere the context admits, mean the persons namedas the Depositors in the Depository Registermaintained by the CDP and into whose SecuritiesAccounts those Shares are credited

“Shares” : the ordinary shares in the capital of the Company

“SMOE Acquisition” : the proposed acquisition by the Company from SCUof the entire issued share capital, representing34,862,612 ordinary shares and 330,000redeemable preference shares, of SMOE, as at thedate of the SMOE Sale and Purchase Agreementplus any additional redeemable preference shares tobe allotted and issued by SMOE to SCU or less anyredeemable preference shares to be redeemed bySCU

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DEFINITIONS

“SMOE Sale and Purchase Agreement” : means the sale and purchase agreement dated 13July 2006 entered into between SCU (as vendor)and SCM (as purchaser) in connection with theSMOE Acquisition

“S$” or “$” and “cents” : Singapore dollars and cents respectively, the lawfulcurrency of the Republic of Singapore

“Threshold 2” : 5% of the latest audited NTA of the Group

“%” : per centum or percentage

The terms “Depositor” and “Depository Register” shall have the meanings ascribed to themrespectively by Section 130A of the Companies Act.

The term “subsidiary” shall have the meaning ascribed to it by Section 5 of the Companies Act.

Words importing the singular shall, where applicable, include the plural and vice versa and wordsimporting the masculine gender shall, where applicable, include the feminine and neuter genders andvice versa. Words importing persons shall include corporations.

Any reference in this Circular to “Rule” or “Chapter” is a reference to the relevant Rule or Chapter inthe Listing Manual as for the time being.

Any reference in this Circular to any enactment is a reference to that enactment as for the time beingamended or re-enacted. Any word defined under the Companies Act or any modification thereof andused in this Circular shall have the meaning assigned to it under the Companies Act.

Any reference to a time of day in this Circular shall be a reference to Singapore time unlessotherwise stated.

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LETTER TO SHAREHOLDERS

SEMBCORP MARINE LTD(Incorporated in Singapore)

(Company Registration No.: 196300098Z)

Directors Registered Office

Goh Geok Ling (Chairman) 29 Tanjong Kling RoadTan Kwi Kin (Group President & CEO) Singapore 628054Tan Pheng HockKiyotaka MatsuzawaTan Tew HanAjaib HaridassTang Kin FeiRon Foo Siang Guan Joseph Kwok Sin Kin Wong Weng Sun (Alternate Director to Tan Kwi Kin)Hirohiko Sakurai (Alternate Director to Kiyotaka Matsuzawa)

7 August 2006

To: The Shareholders of the Company

Dear Sir/Madam

1. INTRODUCTION

On 13 July 2006, the Directors of the Company announced that the Company had entered intothe SMOE Sale and Purchase Agreement dated 13 July 2006 with SCU to acquire the entireissued share capital of SMOE for a cash consideration of S$55,000,000 (subject to Completionand post-Completion adjustments). Concurrently SSPL, a wholly owned subsidiary of theCompany entered into the SemBeth Sale and Purchase Agreement dated 13 July 2006 withSCL to acquire the entire issued share capital of SemBeth (which assets include the SemBethProperties) for a cash consideration of approximately S$11,751,000 and in addition, SSPLshall assume the net loan amount of approximately S$116,983,000 owing by SemBeth toSembCorp Financial Services Pte Ltd. Therefore, the Purchase Consideration payable by theCompany and SSPL is S$183,734,000.

Completion of the SMOE Sale and Purchase Agreement is subject to and conditional uponconcurrent completion of the SemBeth Sale and Purchase Agreement and vice versa.

The SMOE Acquisition and SemBeth Acquisition each constitute an interested persontransaction within the meaning of Chapter 9 of the Listing Manual. The Purchase Considerationpayable for the Combined Acquisition represent approximately 17.30% of the latest auditedNTA of the Group of approximately S$1,061,944,000 as at 31 December 2005. In accordancewith Chapter 9 of the Listing Manual, the Combined Acquisition is subject to the approval ofShareholders at an EGM to be convened.

Stirling Coleman has been appointed to advise the Non-Interested Directors on whether theterms and conditions of the Combined Acquisition are on normal commercial terms and arenot prejudicial to the interests of the Company and its Minority Shareholders. StirlingColeman’s letter to the Non-Interested Directors is set out in Appendix I of this Circular.

The purpose of this Circular is to provide Shareholders with the relevant information pertainingto the SMOE Acquisition and SemBeth Acquisition, inter alia, information on SMOE andSemBeth, the rationale for, and the proforma financial effects and terms and conditions of, theCombined Acquisition, as well as to seek Shareholders’ approval for the Combined Acquisitionat the Company’s EGM to be held on 23 August 2006.

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2. CHAPTER 9 OF THE LISTING MANUAL

2.1 Shareholders’ Approval

Under Chapter 9 of the Listing Manual (“Chapter 9”), where a listed company or any of itssubsidiaries or associated companies that are entities at risk proposes to enter into atransaction with its interested persons, shareholders’ approval and/or an immediateannouncement is required in respect of that transaction if its value is equal to or exceedscertain financial thresholds. In particular, shareholders’ approval (in addition to an immediateannouncement) is required where:-

(a) the value of such transaction with interested persons when aggregated with the valuesof other transactions previously entered into with the same interested person in thesame financial year, equals to or exceeds Threshold 2, such aggregation to exclude anytransaction that has been approved by shareholders previously or is the subject ofaggregation with another transaction that has been previously approved byshareholders; or

(b) the value of such transaction equals to or exceeds Threshold 2.

For the purposes of aggregation, interested person transactions below S$100,000 each are tobe excluded.

2.2 Definitions under Chapter 9

(a) the term “approved exchange” means a stock exchange that has rules which safeguardthe interests of shareholders against interested person transactions according to similarprinciples to Chapter 9;

(b) the term “entity at risk” means:-

(i) the listed company;

(ii) a subsidiary of the listed company that is not listed on the SGX-ST or anapproved exchange; or

(iii) an associated company of the listed group that is not listed on the SGX-ST or anapproved exchange, provided that the listed group, or the listed group and itsinterested person(s) has control over the associated company;

(c) an “associate”:-

(i) in relation to any director, chief executive officer, or Controlling Shareholder (beingan individual) means (i) his immediate family; (ii) the trustees of any trust of whichhe or his immediate family is a beneficiary or, in the case of a discretionary trust,is a discretionary object; and (iii) any company in which he and his immediatefamily together (directly or indirectly) have an interest of 30.0% or more; and

(ii) in relation to a Controlling Shareholder (being a company) means any othercompany which is its subsidiary or holding company or is a subsidiary of suchholding company or one in the equity of which it and/or such other company orcompanies taken together (directly or indirectly) have an interest of 30.0% ormore; and

(d) an “interested person” is defined as a director, chief executive officer or ControllingShareholder of the listed company or an associate of any such director, chief executiveofficer or Controlling Shareholder.

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2.3 Information on the Interested Person Transaction and Threshold 2 Transaction Test

As at the Latest Practicable Date, SCI is a Controlling Shareholder of the Company, holding900,231,260 Shares representing 61.83% of the issued and paid-up share capital of theCompany. By definition therefore, SCI, SCL and SCU are interested persons within themeaning of Chapter 9.

Accordingly, each of the SMOE Acquisition and SemBeth Acquisition constitutes an interestedperson transaction within the meaning of Chapter 9.

Completion of the SMOE Sale and Purchase Agreement is subject to and conditional uponconcurrent completion of the SemBeth Sale and Purchase Agreement and vice versa.Therefore, the value of the SMOE Acquisition to which the Company is considered at riskwhen aggregated with the value of the SemBeth Acquisition, amounts to S$183,734,000 orapproximately 17.30% of the Group’s latest audited NTA of S$1,061,944,000 as at 31December 2005. In accordance with Chapter 9 of the Listing Manual, the CombinedAcquisition, which value is more than 5% of the latest audited NTA of the Group, and henceexceeds Threshold 2, is subject to the approval of Shareholders.

2.4 Other Transactions with Interested Persons during FY 2005

Aggregate value of allinterested person transactionsconducted under shareholders’mandate pursuant to Rule 920

(excluding transactions less than $100,000)

($’000)

Transaction for the Sale of Goods and ServicesKeppel Corporation Ltd and its associates 39,628Neptune Orient Lines Ltd and its associates 1,543SembCorp Industries Limited and its associates 3,272PSA International Pte Ltd and its associates 2,191

Transaction for the Purchase of Goods and ServicesSembCorp Industries Limited and its associates 23,718

Management and Support ServicesSembCorp Industries Limited 250

Total Interested Person Transactions 70,602

Treasury Transactions- Placement of Funds with as at 31 DecemberSembCorp Industries Limited and its associates 8,319

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Aggregate value of all interested person transactions during the financial year under

review (excluding transactions less than $100,000 and transactions conducted under shareholders’mandate pursuant to Rule 920)

($’000)

Transaction for the Purchase of Goods and ServicesNeptune Orient Lines Ltd and its associates 1,700

Disposal of InvestmentSembCorp Logistics Ltd 2,498

Total Interested Person Transactions 4,198

3. THE COMBINED ACQUISITION

3.1 Background to the Combined Acquisition

The combined acquisition comprises of the:SMOE Acquisition andSemBeth Acquisition

SMOE Acquisition

The SMOE Acquisition comprises the acquisition of the entire share capital of SMOE. SMOEcontrols three subsidiaries namely SMOE Indonesia, PT SMOE and SCE Pte Ltd. As at thedate of this Circular, SMOE is a wholly-owned subsidiary of SCU, which is in turn, wholly-owned by SCI.

SMOE is a recognized leader in the engineering and construction of offshore platforms andfloating facilities for the global oil and gas industry. SMOE owns two fabrication facilities, onelocated at the SemBeth Properties and the other within the Kabil Industrial Zone on theeastern shore of Batam Island, Indonesia.

SMOE Indonesia is a wholly-owned subsidiary of SMOE which owns 90% of the shareholdingof PT SMOE Indonesia. SMOE Indonesia owns 30 hectares of land area on the eastern shoreof Batam Island comprising a fabrication facility with a total of 275m water front.

PT SMOE, a 90% owned subsidiary of SMOE Indonesia, operates the Batam fabricationfacilities. PT SMOE holds a foreign business permit (PMA) necessary to enable a foreignerowned company to undertake business activities in Indonesia. The PMA is valid till April 2030and which shall be renewable thereafter.

SCE Pte Ltd, a 51% owned company of SMOE, is a newly incorporated company that wasformed through a joint venture agreement with Concord Electrical Pte Ltd to undertakeelectrical and instrumentation work for offshore oil and gas engineering projects.

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SemBeth Acquisition

The SemBeth Acquisition comprises the acquisition of the entire share capital of SembawangBethlehem Pte Ltd, which assets include the SemBeth Properties comprising of the land andbuildings located along Admiralty Road East and Admiralty Road West (total land and seashore area of 860,939.3 sq m) on Lots 1002A, 1003K, 1004N, 1005X, 1006L, 1007C, 958C,990X, 1192C, 3567M, 2205M, 2206W, 2473X, 1160L, 1161C, 1209K and 1699V of Mukim 13.SMOE occupies a total area of 207,000 sq m with SSPL occupying 407,664 sq m land area,details of which are shown on pages 18 and 19 of this Circular.

SemBeth was incorporated on 10 May 1988 for the purpose of taking over the rig andshipbuilding activities of the Singapore subsidiary of Bethlehem Steel Corporation of the USAwhich activities were operational in the 1970s and 1980s. SemBeth has been inactive since itsrig and shipbuilding activities were scaled down in 1999.

As at the date of this Circular, SemBeth is a wholly-owned subsidiary of SCL, which is in turn,wholly-owned by SCI.

3.2 Purchase Consideration

The Purchase Consideration for the Combined Acquisition has been agreed by the parties tobe S$183,734,000.

The consideration for the SMOE Acquisition is S$55,000,000. This is subject to post-Completion adjustments which will include adjustments for taxes, retirement gratuities,warranty claims and finalization of accounts for each of the Excluded Projects. Theconsideration for the SMOE Acquisition was determined on a willing-buyer-willing-seller basistaking into account, amongst other factors, the net appraised value (‘‘NAV’’) of SMOE valuedby Sallmanns as at 31 December 2005. A copy of the Sallmanns Valuation Report isreproduced in Appendix III of this Circular.

The amount payable for the SemBeth Acquisition is S$128,734,000, comprising of cashconsideration of approximately S$11,751,000 and the assumption of the net loan amount ofapproximately S$116,983,000 owed by SemBeth to SembCorp Financial Services Pte Ltd.The amount payable for the SemBeth Acquisition is supported by independent valuation byCBRE. The purchase of SemBeth, by the Company’s subsidiary SSPL, will effectively allowSCM to own the SemBeth Properties.

The Board of Directors is of the opinion that the Purchase Consideration for the CombinedAcquisition is fair and reasonable and has been arrived at on an arms length basis.

The Company and SSPL intend to fund the Combined Acquisition through internal funds andbank borrowings.

3.3 Conditions Precedent

The Combined Acquisition is conditional upon, inter alia:

(a) the approval of Shareholders at a general meeting of the Company to be convened;

(b) the completion under SemBeth Sale and Purchase Agreement and SMOE Sale andPurchase Agreement taking place contemporaneously; and

(c) there shall not be any damage by fire or other risk or contingency to any part of thepermanent buildings, structures, plant or equipment located on the SemBeth Propertieswhere the aggregate costs of reinstatement of the damaged part(s) amounts toS$600,000 or more provided that such damage shall not have been caused by anynegligent act, default or omission on the part of any SCM Group Company or its agents,contractors, employees, subtenants or licensees.

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3.4 Salient Terms of the SMOE Sale and Purchase Agreement

(a) Undertaking on the consideration of the SMOE Acquisition

SCU agree that SMOE shall determine its NTA as at 31 July 2006. If the NTA of SMOEprior to Completion is less than S$46,000,000, SCU shall on or prior to Completioninject an amount equal to the shortfall into SMOE in return for an equivalent number ofnew redeemable preference shares in the capital of SMOE to be allotted and issued toSCU. If the NTA of SMOE is more than S$46,000,000, SCU shall on or prior toCompletion redeem such number of redeemable preference shares already held by it inthe capital of SMOE that is equivalent to such excess.

(b) Adjustments to consideration

SCU and the Company agree, notwithstanding the Completion of the SMOE Acquisition,that the profits, entitlements and benefits as well as the loss and liabilities of theExcluded Projects to the extent not already taken in the accounts (including contingentliabilities) shall accrue to and/or be assumed by SCU.

Adjustments shall be made post-Completion in respect of the following:

(i) the net profit and loss position of each Excluded Project at the end of eachcalendar year for seven (7) years from the date of Completion of the SMOEAcquisition;

(ii) the claims made against or credits given to SMOE Group Companies for taxes(save for Indonesian taxes) at the end of each calendar year for seven (7) yearsfrom the date of Completion of the SMOE Acquisition;

(iii) the provisions made by SMOE for the retirement gratuity payable to a specified listof union employees at the end of each calendar year for seven (7) years from thedate of Completion of the SMOE Acquisition; and

(iv) the receipt by SMOE Group Companies of the proceeds of the divestment of thesubsidiaries made prior to the Combined Acquisition. If the proceeds are notreceived by 31 December 2006, SCU shall pay to the Company the amount notreceived. If the Company received such payment subsequently, it shall forwardsuch receipt to SCU.

Any payments to be made by SCU to the Company due to a negative change in any ofthe above situations or vice versa due to a positive change, as the case may be, shallbe made within ten (10) Business Days of the Purchaser’s notice.

3.5 Salient Terms of the SemBeth Sale and Purchase Agreement

The SemBeth Properties are to be sold free from encumbrances, with the benefit of existingtenancies and licences subsisting as at the date of the SemBeth Sale and PurchaseAgreement.

4. INFORMATION ON SMOE

4.1 Information on SMOE

SMOE is a leading international industry player in the offshore oil and gas sector offering acomplete range of engineering, procurement and construction services.

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With more than 30 years of operating experience, SMOE fabricates and delivers acomprehensive range of offshore production facilities comprising:

Platforms: Integrated production platforms, process platforms, drilling platforms,wellhead platforms and accommodation platforms;Modules: Water injection modules, compression modules, power generation modulesand living quarters; andFPSO (floating, production, storage and offloading) topside modules: In addition toconstructing the topside process modules, the SMOE Group Companies also undertakeintegration and pre-commissioning work.

SMOE has successfully delivered over 100 projects to its clients, comprising:

World’s major oil and energy companies such as ConocoPhillips, Shell, WoodsideEnergy, Occidental Petroleum, Prekier Oil, Maersk Oil and GasNational oil companies such as PTT (Thailand), Vietsovpetro (Vietnam), QatarPetroleum (Qatar), Mossgas (South Africa)EPC (engineering, procurement and construction) contractors such as Saipem, Kellogg,Brown & Root, Modec, Aker Kvaerner

Currently, SMOE Group of Companies is involved in two major offshore projects, which formpart of the SMOE Acquisition. The Kerisi Project (Indonesia) is an agreement withConocoPhillips Indonesia Inc. Ltd and involves the fabrication of wellhead platforms and centralprocessing platforms. The Bohai Phase II Development Project (China) is the result of a joint-venture with SSPL, a subsidiary of the Company. The Bohai Phase II Project involvesengineering, procurement, fabrication, integration and commissioning for 15 topside modules,1 flare tower and 7 pipe-rack modules.

4.2 Shareholding Structure of SMOE and its subsidiaries forming the SMOE Acquisition

The following is a diagrammatic representation of the corporate structure of SMOE and itssubsidiaries forming the SMOE Acquisition:

51 %

SMOE

SCESMOE

Indonesia

PT SMOE Indonesia

90 %

100 %

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4.3 Directors and Management Team of SMOE

As at the Latest Practicable Date, the board of directors and management team of SMOEcomprised the following:

(a) Mr Tang Kin Fei (Chairman)

Mr Tang is currently the Group President and CEO of SCI. Prior to assuming this officein May 2005, he was President and Chief Executive Officer of SCU. He spearheadedthe development of Singapore’s first multi-utility facility on Jurong Island, drove thelandmark West Natuna Gas Sales Agreement for the import of natural gas intoSingapore and forged the expansion of SCU overseas. Mr Tang is also the non-executive Director of the Company.

Mr Tang holds a First Class Honours degree in Mechanical Engineering from theNational University of Singapore and attended the Advanced Management Programmeat INSEAD.

(b) Mr Joseph Francis Gomez (Director)

Mr Gomez joined on 28 August 1978 as a Management Trainee under SembawangEngineering Pte Ltd (the former name of SCU) after graduating with a degree in ControlEngineering at the University of Leeds, UK. He has 20 years of working experience inthe offshore oil industry at various levels before being transferred to SCU in 1998 asGeneral Manager, SembCorp Gas, to start up the gas business.

He is currently Executive Vice President, SCU Singapore, a division of SembCorpUtilities Pte Ltd. He is responsible for all aspects of the operations of Utilities, Powerand Chemical Feedstock divisions and is a Director of SMOE Pte Ltd. Concurrently, heis also a board member of our SembCorp Utilities UK and Middle East power andutilities operations.

(c) Ms Lim Suet Boey (Director)

Ms Lim joined on 5 February 1991 as a Legal Officer and is currently Director, GroupLegal of SCI. She acts as chief legal advisor to the SCI group of companies in managingand containing risk exposures of the SCI group and to preserve SCI group’s assets andshareholder value. Prior to this appointment, she was Senior Vice President, Legal,SembCorp Utilities Pte Ltd.

She graduated with a degree in Bachelor of Science (2nd Class Upper Hons) fromUniversity of Malaya in 1981 and a degree in Bachelor of Law (2nd Class Lower Hons)from the University of London in 1984. She obtained 2nd Class Upper in the Practical LawCourse and was called to the Malaysian Bar in August 1987.

(d) Mr Alvin Yeo Khirn Hai (Director)

Mr Yeo is an independent director of SMOE. He was elected as a Member of Parliamentof Hong Kah GRC in the recently held general elections on 24 April 2006. Mr Yeo is alsoa Director of Singapore Land Limited and is currently the Chairman of the RemunerationCommittee. Mr Yeo is an Advocate and Solicitor and the Managing Partner of Messrs.Wong Partnership. He was appointed a Senior Counsel of the Supreme Court ofSingapore in January 2000. Mr Yeo serves on the Appeals Advisory Panel of theMonetary Authority of Singapore, the Council of the Law Society, and the Inquiry Panelfor the disciplinary proceedings against lawyers as well as on the Citizenship Committeeof Inquiry. He is also a Director of United Industrial Corporation Limited.

Mr Yeo graduated with a Bachelor of Laws (Honours) from King’s College, University ofLondon, and a Barrister-at-Law (Gray’s Inn).

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(e) Ms Foo Fei Voon (Director)

Ms Foo joined the SCI group on 6 May 1992 as an Accountant and is currently GroupFinancial Controller of SCI. She manages the finance functions for SCI and theSingapore operations of SCU including SMOE.

Ms Foo graduated with a degree in Bachelor of Commerce from University ofMelbourne, Australia in 1988.

(f) Mr Aw Chin Leng (General Manager)

Mr Aw joined the SCI group on 1 March 2000 and is currently the General Manager ofSMOE. He is overall in charge of SMOE.

Mr Aw graduated with a Bachelor of Science (Honours) in Mechanical Engineering &Metallurgy in 1981 and a Master of Science in Metallurgy in 1983 from University ofManchester Institute of Science and Technology (UMIST), England.

4.4 Risk Factors

The Combined Acquisition will carry certain risks as highlighted below:

4.4.1 Successful Tendering on the Future Projects

SMOE’s future revenue depends substantially on their ability in successfully tenderingand securing future projects. Any increase in competition and failure to bid targetcontracts can affect SMOE’s market share and thus its financial condition, operationsand prospects.

4.4.2 Strong Competition for Skilled Talent

The boom in the offshore sector in Singapore offers attractive work and careeropportunities and if the current situation remains unchanged, the risk of losing talentedand skilled engineers and managers is higher.

4.4.3 EPCI Business Model

SMOE ventured into undertaking EPCI projects in the last 2 years which includesEngineering, Procurement, Construction and Offshore Installation work. SMOE does nothave the in-house capability or expertise to handle Offshore Installations; hence theinstallation work was subcontracted to external parties which exposed SMOE to higheruncertainty and risks. Should the acquisition be approved, it is recommended that theenlarged entity shall focus on SMOE’s core expertise in executing EPC projects andEPCI projects will only be undertaken if there are appropriate partnerships orarrangements with leading offshore installation subcontractors to mitigate the risks.

4.4.4 Changes in Political, Economic and Regulatory Environment in Indonesia

Expansion in Batam yard located in Indonesia allows SMOE to increase its capacity forfuture contracts. Further capital expenditure is therefore required in the next few years.The Batam yard is subject to various laws and regulations governing its operations inIndonesia. Future political and economic changes in Indonesia might have eitherfavourable or unfavourable impact on SMOE.

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4.5 Financial Highlights of SMOE Group

A summary of the Proforma Profit and Loss accounts of the SMOE Group’s business for thepast five (5) financial years ended 31 December 2001, 2002, 2003, 2004 and 2005 and theProforma SMOE Group’s balance sheet as at 31 December 2005 are set out below:-

Proforma Profit and Loss Accounts of the SMOE Group’s business

Annual 2001 2002 2003 2004 2005 average

S$’000 S$’000 S$’000 S$’000 S$’000 S$’000

Revenue, per audited accounts 204,738 350,428 489,232 409,401 318,354 354,431 less: EPCI projects 0 0 (227,196) (339,332) (113,045)

Net Revenue excluding EPCI projects 204,738 350,428 262,036 70,069 205,309 218,516

Profit after tax, per audited accounts 8,878 11,867 13,412 (63,567) (39,714) (13,824)

Less : (Profit)/ loss after tax of EPCI projects 0 0 (5,797) 54,773 47,761

Net Profit after tax excluding EPCI projects 8,878 11,867 7,615 (8,794) 8,047 5,522

PATMI margin (%)a) with EPCI projects 4.34% 3.39% 2.74% -15.53% -12.47% -3.90%b) without EPCI projects 4.34% 3.39% 2.91% -12.55% 3.92% 2.53%

Footnote:

1. The Proforma Profit & Loss for the financial years ended 31 December 2001 to 2005 are prepared basedon the audited accounts of the relevant companies for the respective years. There are no changes to theaccounting policies for these companies except for the changes arising from the revisions of or newFinancial Reporting Standards (FRS) which took effect over these years. Comparatives have not beenrestated.

2. There is no significant impact to the Proforma Profit & Loss as a result of the adoption of the FRS overthe years except for the adoption of FRS39, Financial Instruments: Recognition and Measurement inyear 2005.

3. The adoption of the FRS39 has resulted in the SMOE Group Companies’ business recognisingembedded derivatives and recognising all derivative financial instruments at fair values. These changesin accounting policies have been accounted for prospectively in accordance with the transitionalprovisions. The adoption of FRS39 has resulted in a net increase in the Proforma Profit & Loss for theyear 2005 by approximately S$7.0 million. Comparatives for years 2001 to 2004 have not been restated.

4.6 Financial Review of SMOE Group

Review of SMOE Group Companies’ business for the past 5 years from Year 2001 to2005

The Proforma Profit and Loss Accounts for the SMOE Group Companies’ business includedresults of the offshore component secured under the name of SMOE International Pte Ltd(SMOE International), a 100% owned subsidiary of SMOE Pte Ltd, and the results of itsprocurement-arm, SMOE (Singapore) Pte Ltd, a wholly owned subsidiary of SCU, which arenot part of the Combined Acquisition. The offshore component under SMOE International ispart and parcel of the entire project secured by SMOE with the customers and is split intoonshore (with SMOE) and offshore (with SMOE International).

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Over the past five (5) years from 2001 to 2005, SMOE Group’s business has delivered, onaverage, annual revenue of more than S$350.0 million (excluding EPCI projects, averageannual revenue was more than S$200.0 million).

In 2001 and 2002, SMOE Group’s business delivered an annual profit after tax ofapproximately S$9.0 million and S$12.0 million, respectively, before participating in EPCIprojects. In 2002, it has secured three (3) significant contracts, two (2) of which are EPCIprojects. EPCI project is a contract that includes offshore installation component under itsscope of work. In 2003, another EPCI project is added to its order book. These three (3) EPCIprojects were installed offshore during the second half of 2004 and in year 2005.

Revenue rose significantly in 2003, reaching S$489.0 million with the inclusion of two (2) EPCIprojects (secured in 2002) which are more than 20% completed and the profits of theseprojects were recognized in accordance with their accounting policy.

Without EPCI projects, there was a loss of approximately S$9.0 million in the year 2004. Thisloss was partly due to overheads not absorbed as non EPCI projects in 2004 comprising only17% of its total revenue in 2004 and also the loss incurred by its new Batam yard which wasonly operational in 2005.

Since year 2004, SMOE has not entered into any new EPCI contracts and focused itself inexecuting and delivering the orders on hand profitably. SMOE has also embarked on anenterprise-wide risk management processes to tighten its systems and processes.

In Year 2005, it has returned to profitability with more non EPCI projects undertaken since.

4.7 Review of Proforma SMOE’s Group Financial Position

As at 31 December

2005S$’000

Non-current assets 20,197

Current assets 206,609

Current liabilities (183,905)

Net current assets 22,704

Non-current liability (5,289)

Net assets 37,612

Represented by:-

Share capital 67,862

Capital reserves 1,175

Other reserves 473

Accumulated loss (32,736)

Attributable to equity holders of SM0E 36,774

Minority interests 838

Total equity 37,612

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The Proforma SMOE Group balance sheets as at 31 December 2005 is prepared from theaudited accounts of the entities of SM0E Group Companies and has assumed that CSEdivestment is completed on 31 December 2005 and that the divestment proceeds are used toreduce SMOE’s loan taken from a related company.

Non-current assets

Of the S$20.2 million, S$19.8 million represents the total fixed assets net book value as at 31December 2005 which SMOE’s facilities and Batam yard accounted for S$7.4 million andS$12.4 million respectively. The main categories of fixed assets are: leasehold land & building(S$8.8 million), plant & machineries (S$6.0 million) and capital work in progress on the Batamyard expansion (S$4.4 million). The expansion of the Batam yard is to increase its capacityfrom 15 hectares to 30 hectares, to take advantage of the booming oil & gas explorationactivities in Indonesia and hence expected increase in demand of offshore platforms, whichtypically required local content. The Batam yard also serves as additional capacity for itsSingapore operations due to its close proximity to Singapore.

Current assets

The total current assets as at 31 December 2005 was S$207.0 million, comprised mainly ofwork in progress of S$73.0 million (net of progress billings), trade and other receivables ofS$90.0 million and balances due from related companies of S$26.0 million and cash of S$18.0million.

Current liabilities

The total current liabilities as at 31 December 2005 was S$184.0 million, comprised mainly oftrade and other creditors and accrued expenses of S$140.0 million, balances due to relatedcompanies of S$36.0 million, progress billings in excess of work in progress of S$4.0 millionand provisions for warranty and tax of S$4.0 million.

Non current liability

This liability of S$5.3 million is a long term loan extended to SMOE Indonesia by SCU for PTSM0E’s Batam Phase II development project.

Shareholders Funds

As at 31 December 2005, the equity attributable to the shareholders of the Proforma SMOEGroup Companies is approximately S$38.0 million. The Net Assets of the Proforma SMOEGroup Companies (after the CSE divestment) at Completion shall not be less than S$46.0million as warranted by SCU.

4.8 Working Capital Position

The current ratio of the Proforma SMOE Group Companies is at 1.1 times as at 31 December2005.

5. INFORMATION ON SEMBETH

5.1 SemBeth was incorporated on 10 May 1988 for the purposes of taking over the rig andshipbuilding activities of the Singapore subsidiary of Bethlehem Steel Corporation of the USA,which activities were operational in the 1970s and 1980s. SemBeth has been inactive since itsrig and shipbuilding activities were scaled down in 1999.

SCL is the legal and beneficial owner of SemBeth (which assets include the SemBethProperties).

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SemBeth Properties are located along Admiralty Road East and Admiralty Road West, nearCanberra Road, at the northern tip of Singapore. SemBeth Properties comprise an aggregateland area of 860,939.3 sq.m. in area (as depicted by the shaded areas in the site plan in theCBRE Valuation Report in Appendix II of this Circular). SemBeth Properties, with the buildings,were valued at S$125,000,000 by CBRE as at 28 April 2006 (further details are set out inAppendix II of this Circular).

Further details of the land tenure, use of the plots, land and foreshore area are as follows:

Lot No. Mukim Land Area (sq.m.)* Use Tenure

1699V 13 518,480 Shipyard Land 60 years with effect from 1/12/68

1160L 13 4,790 Shipyard Land 60 years with effect from 1/12/68

1161C 13 13,818.3 Shipyard Land 60 years with effect from 1/12/68

1192C 13 29,265 Dock 53 years with effect from 17/01/75

1002A 13 2,681 Finger Pier 52 years with effect from 01/12/76

1003K 13 216 Access Ramp 52 years with effect from 01/12/76

1004N 13 36 Concrete Dolphin 52 years with effect from 01/12/76

1005X 13 34 Concrete Dolphin 52 years with effect from 01/12/76

1006L 13 28 Concrete Dolphin 52 years with effect from 01/12/76

1007C 13 28 Concrete Dolphin 52 years with effect from 01/12/76

2205M 13 124.6 Mooring Dolphin 52 years with effect from 01/12/76

2206W 13 124.6 Mooring Dolphin 52 years with effect from 01/12/76

3567M 13 35,697.1 Service Pier 30 years with effect from 12/06/93

958C 13 1,926 Concrete Pier 57 years with effect from 15/12/71

990X 13 118 Concrete Pier 57 years with effect from 15/12/71

1209K 13 201,923 Shipyard Land 60 years with effect from 01/12/68

2473X 13 51,649.7 Shipyard Land 60 years with effect from 01/12/68

Note:

* SSPL occupies 407,664 sq.m. and SMOE occupies 207,000 sq.m. of the SemBeth Properties, out of the totalarea of 860,939.3 sq m.

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5.2 Review of SemBeth’s Proforma Financial Position

As at 31 December

2005S$’000

Non-current assets 128,734

Current assets 7,055

Current liability (124,000)

Net current liabilities (116,945)

Net assets 11,789

Represented by:-

Share capital 72,380

Accumulated losses (60,591)

Attributable to equity holders of Sembeth and total equity 11,789

The Proforma SemBeth balance sheet is prepared based on the audited accounts of SemBethas at 31 December 2005 and has assumed that its acquisition of the SemBeth Properties wascompleted on 31 December 2005 and that the source of funding for this purchase is providedby its own internal resources and a loan by a related company.

Non-current assets

This relate to the property, plant and machinery of the Sembeth Properties.

Current assets

The total current assets as at 31 December 2005 were S$7.1 million, comprising mainly ofother receivables of S$6.2 million and cash of S$0.9 million.

Current liability

This relates to balances due to related companies of S$124.0 million.

As at 31 December 2005, SemBeth had un-utilised tax losses of approximately S$46,910,000available for set-off against future taxable income subject to the compliance with the provisionsof Section 37 of the Income Tax Act, Chapter 134 and the agreement by Comptroller of IncomeTax.

The Proforma SemBeth profit & loss accounts up to 31 December 2005 are not prepared as itwas then a dormant company.

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6. RATIONALE FOR THE COMBINED ACQUISITION

6.1 To strengthen the Group’s position as a leading global player in the offshore oil and gassector

SCM is a leading global marine engineering group specializing in a full spectrum of integratedsolutions, ranging from ship repair, ship building, ship conversion, rig building to offshoreengineering. As one of the largest marine engineering leaders in Asia, the Group has a globalnetwork spanning four strategic hubs – Singapore, China, Brazil and USA. SCM’s Singaporeyards consist of Jurong Shipyard Pte Ltd (“JSPL”), SSPL, PPL Shipyard Pte Ltd (“PPL”) andJurong SML Pte Ltd (“JSML”) supported by PT Karimun Sembawang Shipyard (“PTKSS”) inIndonesia.

JSPL, located in the west of Singapore on approximately 65 hectares site, is a leadingshipyard offering integrated services and customized solutions in ship repair, ship building, shipconversion, rig building and offshore engineering. Apart from its proven track record in thebuilding and servicing of jack-up and semi-submersible rigs, JSPL is also a global leader in theEPCI conversion of tankers to FPSOs, FSOs and FPUs.

SSPL, located on Singapore’s north, operates on approximately 41 hectares leasehold landwhich is jointly located with SMOE on the SemBeth Properties. The shipyard specializes inship repair, ship conversion which includes niche markets such as passenger linerconversions/upgradings and FPSO/FSO conversions. Since 1999, SSPL and SMOE haveenjoyed good business synergies and have successfully collaborated in executing andcompleting three major newbuild FPSOs.

Leveraging on the strengths and resources of the Group, SSPL was recently reorganized totake on rig building projects. The jack-up rig for Aban Singapore Pte Ltd, a subsidiary of AbanLoyd Chiles will be built in SSPL. More offshore projects are expected to be executed in SSPLand the acquisition of SemBeth and the enlarged land area will enable SSPL to take on moresuch projects given the current buoyant rig building market.

PPL, located on the west of Singapore on approximately 14 hectare site is a rig-building yardwith proven track record in the building and servicing of jack-up and semi-submersible rigs.The Baker Marine Pacific Class 375 Deep Drilling design is a proprietary design developedand owned by Baker Marine Pte Ltd, a wholly owned subsidiary of PPL. There are fifteen (15)jack-up rigs on order world-wide based on PPL’s Baker Marine Pacific Class 375 proprietarydesign.

JSML is a mid-sized shipyard specializing in the repair of small and medium-sized vessels,afloat and anchorage repairs and the construction of mid-sized vessels. Located on the westcoast of Singapore, JSML operates from two locations with a total land area of approximately11 hectares.

PTKSS operates primarily from approximately 20-hectare site located on Karimun Island inIndonesia, approximately 40 kilometers southwest of Singapore. The shipyard’s main activitiesinclude afloat repairs, fabrication and piping works, steelwork and block fabrication andsupporting the Singapore yards as a complementary facility.

6.2 To enhance the Group’s global market share in the offshore oil and gas sector

The Directors believe that the acquisition of SMOE, an established industry leader in theengineering and construction of offshore platforms and floating facilities for the global oil andgas industry, and the acquisition of SemBeth, will position the Group to capitalize on its currentoffshore projects and to take on more of such projects.

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SMOE’s global market share for offshore production platforms and FPSO topsides is estimatedto be 11% based on the total tonnage of ongoing or completed projects from January 2004 toJune 2005, making it one of the largest producers in the world. Excluding Malaysian yardswhich generally serve the domestic market, SMOE is estimated to be the 3rd largest yardglobally on total tonnage for the same period.1

SMOE’s strong offshore oil and gas engineering and construction capability and track record inthe construction of offshore platforms and floating production facilities fully complement andsupplement the Group’s shipyards and the core activities of ship repair, shipbuilding, shipconversion, offshore engineering and rig building. SMOE’s complementary strengths fit wellwith the Company’s global network and integrated solutions and services for its worldwideclientele.

6.3 To capitalize on the strategic location of SMOE’s fabrication facilities and SemBethProperties

The acquisition of SemBeth and the land and buildings located along Admiralty Road East andAdmiralty Road West will enable the Group to grow its offshore and rig building activities bymaximizing the land and workshop capacity to take on more jobs given the current buoyantmarket. SemBeth has been inactive since its rig and shipbuilding activities were scaled down in1999.

The Directors believe that by consolidating SMOE and SemBeth, the Group would be in aposition to integrate and leverage on the combined facilities and resources of the Group togrow and capture a larger market share and to become a leading global player in the offshoreoil and gas industry offering customers with innovative marine engineering solutions andservices worldwide.

SMOE’s fabrication facilities are located adjacent to SSPL. The acquisition of SMOE wouldenable new offshore FPSOs to be built and for topside fabrication activities to take place withinthe same geographical location, resulting in land optimization and cost savings throughcommon sharing of workshops, quays, fabrication and dock facilities. In addition, SMOE’s closeproximity to SSPL will provide the Group with a strong competitive edge in bidding for futureFPSO topside production modules, FPSO conversion and FPSO newbuilding projects therebyproviding customers with a complete and integrated FPSO solutions.

Also, valuable waterfront land, workshop facilities and availability of a larger pool of humancapital and land could be optimised for rig building activities to meet the current buoyant rigmarket.

The acquisition of SMOE would enable the Group immediate access to the fabricationworkshop facilities in Batam yard. The fabrication workshop and waterfront facilities are readilyexpandable and offer great potential for growth and to take on more offshore jobs.

6.4 To realize cost savings by capitalizing on the strategic value of land and positivesynergies between SMOE and the Group

The acquisition of SMOE will enable the Group to combine and maximize the expertise andsynergies of both organizations to offer offshore oil and gas customers, a truly one-stopintegrated solution for their offshore needs in a single shipyard and fabrication facility. Therewill also be a unique merger of complementary skills and expertise in the area of projectmanagement, highly sophisticated design, construction or conversion of FPSO facilities, be itcomplete FPSO hull conversion, topside, turret and mooring system fabrication and installationor the integration of marine and process controls and instrumentation systems.

22

1 Information obtained from SMOE Management.


The offshore workload provided by SMOE will complement the Group’s offshore andconversion and rig building businesses and further facilitate the growth of revenue from thebuoyant offshore sector. This, in turn, would lead to maximum utilisation of SMOE and theGroup’s current resources, facilities and infrastructure. The enlarged Group will have increasedflexibility to deploy its resources from a larger talent pool and access to the well-equippedfabrication workshop facilities in the Batam yard.

Currently, SSPL and SMOE occupy approximately 60 hectares of the 86 hectares of SemBethProperties. The rest of the SemBeth Properties are currently being leased to third partytenants (including SSPL’s resident contractors). The Directors are of the view that it iscommercially beneficial for the Group to acquire the SemBeth Properties. The acquisition ofthe SemBeth Properties would ensure that SSPL can fully optimize the land usage and thefacilities of the entire location for its enlarged operations, including rig building activities.

Summary

6.5 The acquisition of SemBeth (which assets include the SemBeth Properties) will, in summary,have the following benefits:

(a) Further optimisation of the land area utilisation for rig construction, offshore andconversion and fabrication work through streamlining of activities and sharing ofcommon resources;

(b) Flexibility to plan, invest and execute infrastructure or facilities expansion programmes tomeet new business requirements and market demands including rig constructions;

(c) It provides a cushion from future rental fluctuations. It is estimated that S$130,000,000net total rental savings (based on projected discounted cash flows) can be derived overthe next twenty-two (22) years based on the projected annual rental. The SemBethAcquisition will also provide certainty that the enlarged Group can continue to operate atits existing facilities;

(d) The acquisition of SMOE will strengthen the Group’s global position in the offshore oiland gas industry and will enable the enlarged Group to maximize the utilization of theland for optimum production. This is expected to yield an estimated annual cost savingsin the region of S$5,000,000 for the Group; and

(e) With the demand in the offshore oil and gas market expected to be strong, the timelyacquisition of SMOE, SemBeth (which assets include the SemBeth Properties) wouldalso enable the Group to grow and expand its capacity to capture market share.

7. FINANCIAL EFFECTS OF THE COMBINED ACQUISITION

The following financial effects are shown for illustrative purposes only and do not necessarilyreflect the actual future financial position and prospects of the Group after the CombinedAcquisition.

The financial effects of the Combined Acquisition are calculated based on the proformafinancial information provided by SMOE and SemBeth (the “Proforma Financial Information” asset out in sections 4.5, 4.7 and 5.2) on the following significant bases and assumptions:

(a) for the purpose of computing the financial effects of the Combined Acquisition on theconsolidated earnings of the Group, the Combined Acquisition is assumed to have beeneffected in FY 2005;

(b) for the purpose of computing the financial effects of the Combined Acquisition on theconsolidated NTA and net gearing of the Group, the Combined Acquisition of SMOEearnings is based on its audited accounts for FY 2005 excluding the EPCI projects; and

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(c) that the NTA at Completion of SMOE Group Companies as at 31 July 2006 will not beless than S$46,000,000 as guaranteed by SCU.

7.1 Share Capital

As at the Latest Practicable Date, the Company has an issued and paid-up share capital of1,456,023,265 shares.

7.2 NTA

The financial effect of the Combined Acquisition on the NTA per Share of the Group based onthe Proforma Financial Information (assuming that the Combined Acquisition had taken placeon 31 December 2005) is as follows:-

As at 31 December 2005

Before the After the Combined Acquisition Combined Acquisition

NTA (S$’000) 1,061,944 1,052,944NTA per Share (cents) 73.22 72.60

7.3 Earnings per Share (“EPS”)

The financial effect of the Combined Acquisition on the EPS of the Group based on theProforma Financial Information (assuming that the Combined Acquisition had taken place on 1January 2005) is as follows:-

For the Year Ended 31 December 2005

Before the After the Combined Acquisition Combined Acquisition

Net profit after tax attributable to Shareholders (S$’000) 121,398 123,874Basic EPS (cents) 8.45 8.62Fully diluted EPS (cents) 8.25 8.41

Note:

The Net Profit after tax attributable to shareholders and EPS are based on the adjusted Proforma SM0E Group Companies from S$8,047,000 to S$1,834,000 to align with SCM’s Group accounting treatment.

7.4 Gearing

The Group will be using its internal resources and borrowings to fund the CombinedAcquisition and will be in net cash position after the Combined Acquisition.

8. OPINION OF THE INDEPENDENT FINANCIAL ADVISOR

Pursuant to Chapter 9 of the Listing Manual, Stirling Coleman has been appointed as anindependent financial adviser to the Non-Interested Directors to advise them on whether theProposed Acquisition is on normal commercial terms and whether it is prejudicial to theinterests of the Company and its Minority Shareholders. A copy of their letter of advice to theNon-Interested Directors is set out on page 29 of this Circular. Shareholders are advised toread Stirling Coleman’s letter of advice carefully.

Taking into consideration the factors set out in its letter, Stirling Coleman is of the view that thefinancial terms of the Combined Acquisition are on normal commercial terms and are notprejudicial to the interests of the Company and its Minority Shareholders.

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Accordingly, Stirling Coleman has advised the Non-Interested Directors to recommend thatShareholders approve the Proposed Acquisition and vote in favour of the Ordinary Resolutionto be proposed at the EGM, notice of which is set out on page 99 of this Circular.

9. INDEPENDENT VALUATION

Sallmanns was appointed by the Company for the purpose of conducting an independentvaluation of the SMOE business. A copy of the Sallmanns Valuation Report is reproduced inAppendix III of this Circular.

CB Richard Ellis (Pte) Ltd was appointed by the Company and SSPL for the purpose ofconducting an independent valuation of the SemBeth Properties. A copy of the CBREValuation Report is reproduced in Appendix II of this Circular.

10. DISCLOSURE OF SHAREHOLDINGS

10.1 Directors’ Interests

As at the Latest Practicable Date, the interests of the Directors in the Shares as recorded inthe Register of Directors’ Shareholdings maintained by the Company are set out below:

No. of Sharescomprised in Direct Interests Deemed Interests

Directors outstanding No. of %(1) No. of %(1)

share options/awards Shares Shares

Goh Geok Ling – – – – –

Tan Kwi Kin 3,880,000(5) 3,091,200 0.21 – –

Tan Pheng Hock 175,000 20,000 NM(2) – –

Kiyotaka Matsuzawa 365,000 – – – –

Tan Tew Han 347,000 18,000 NM(2) – –

Ajaib Haridass 197,500 32,500 NM(2) – –

Tang Kin Fei 20,000 – – – –

Ron Foo Siang Guan – – – 30,000(3) NM(2)

Joseph Kwok Sin Kin – – – 50,000(4) NM(2)

Wong Weng Sun 991,500(6) 92,500 NM(2) – –(Alternate Director to Tan Kwi Kin)

Hirohiko Sakurai – – – – – (Alternate Director to Kiyotaka Matsuzawa)

Note: -

(1) Based on the issued share capital of the Company which is 1,456,023,265 Shares as at the Latest PracticableDate.

(2) Not Meaningful.

(3) Ron Foo Siang Guan is deemed to be interested in the 30,000 Shares held by his spouse and a company inwhich he has a deemed interest of 20% or more.

(4) Joseph Kwok Sin Kin is deemed to be interested in the 50,000 Shares held by Citibank Nominees SingaporePte Ltd.

(5) Of the 3,880,000 Shares:

(a) 3,200,000 Shares are comprised in options granted to Tan Kwi Kin pursuant to the SembCorp MarineShare Option Plan;

25


(b) 380,000 Shares are comprised in conditional awards granted to Tan Kwi Kin, subject to performance targetsset over a three (3) year period from 2004 to 2006. No Shares will be released should targets be achievedat below 80% of the targets set and up to twice the number of Shares will be released should targets beachieved at up to 200% of the targets set; and

(c) 300,000 Shares are comprised in conditional awards granted to Tan Kwi Kin, subject to performance targetsset over a three (3) year period from 2005 to 2007. The actual number of Shares to be released dependson the threshold ranging from 0% to 150% of the original award.

(6) Of the 991,500 Shares:

(a) 766,500 Shares are comprised in options granted to Wong Weng Sun pursuant to the SembCorp MarineShare Option Plan; and

(b) 225,000 Shares are comprised in conditional awards granted to Wong Weng Sun, subject to performancetargets set over a three (3) year period from 2005 to 2007. The actual number of Shares to be releaseddepends on the threshold ranging from 0% to 150% of the original award.

10.2 Substantial Shareholders’ Interests

As at the Latest Practicable Date, the interests of the Substantial Shareholders in the Sharesas recorded in the Register of the Substantial Shareholders maintained by the Company areset out below:

Direct Interest Deemed Interest Total Interest

Name of No. of Shares % No. of Shares % No. of Shares %SubstantialShareholder

SembCorp 900,231,260 61.83 – – 900,231,260 61.83Industries Ltd

Temasek Holdings – – 902,174,260 61.96 902,174,260 61.96(Private) Limited(1)

The Capital Group – – 74,047,000 5.09 74,047,000 5.09Companies, Inc.(2)

Note: -

(1) Temasek Holdings (Private) Limited is deemed to be interested in the 900,231,260 Shares held by SembCorpIndustries Ltd as well as the balance of 1,943,000 Shares held by its other subsidiaries.

(2) The Capital Group Companies, Inc is deemed to be interested in the 74,047,000 Shares held by RafflesNominees Pte Ltd and DBS Nominees Pte Ltd.

11. AUDIT COMMITTEE’S STATEMENT

The members of the Audit Committee, namely Mr Tan Tew Han, Mr Ajaib Haridass and Mr RonFoo Siang Guan, having regard to Stirling Coleman’s letter of advice concerning the terms ofthe SMOE Acquisition, the SemBeth Acquisition and the valuation of the SemBeth Propertiesas set out in the CBRE Valuation Report, are of the view that the terms of the SMOEAcquisition and SemBeth Acquisition are on normal commercial terms and are not prejudicialto the interests of SSPL, the Company, and its Minority Shareholders.

12. DIRECTORS’ RECOMMENDATION

12.1 Proposed acquisition of the entire issued share capital of SMOE and SemBeth

Mr Goh Geok Ling (who is a director of both the Company and SCI), Mr Tan Pheng Hock (whois a director of Singapore Technologies Engineering Ltd, a subsidiary of Temasek) and Mr TangKin Fei (who is a director of the Company, as well as SCI and SCU) will abstain from makingany recommendation on the Combined Acquisition at the EGM to be convened to consider andapprove the Combined Acquisition.

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The Non-Interested Directors, having considered the basis of the Purchase Consideration, therationale for the Combined Acquisition and the advice of Stirling Coleman in respect of theCombined Acquisition, are of the view that the Purchase Consideration payable is fair andreasonable and that the Combined Acquisition is on normal commercial terms and is notprejudicial to the interests of the Company and its Minority Shareholders.

Accordingly, the Non-Interested Directors recommend that the Shareholders vote in favour ofthe Ordinary Resolution set out in the Notice of EGM on page 99 of this Circular.

13. SHAREHOLDERS WHO WILL ABSTAIN FROM VOTING

SCI which wholly owns SCU and SCL is deemed to be interested in the entire issued sharecapital of the Company and shall abstain from voting at the EGM in respect of the OrdinaryResolution relating to the Combined Acquisition.

Temasek Holdings (Private) Limited, which is deemed to be interested in the entire issuedshare capital of SCI as well as the balance of 1,943,000 Shares held by its other subsidiariesshall abstain from voting at the EGM in respect of the Ordinary Resolution relating to theCombined Acquisition.

SCI, Temasek and their respective associates should not accept nominations as proxy unlessShareholders appointing them as proxies give specific instructions in the relevant proxy formson the manner in which they wish their votes to be cast for the Ordinary Resolution relating tothe Combined Acquisition.

14. EXTRAORDINARY GENERAL MEETING

The EGM, notice of which is set out on page 99 of this Circular will be held at 29 Tanjong KlingRoad, Singapore 628054 on 23 August 2006 at 11.15 a.m. (or as soon as the conclusion ofthe Extraordinary General Meeting to approve the proposed acquisition of 110,400,000ordinary shares in the issued share capital of Cosco Corporation (Singapore) Limited to beheld at 11.00 a.m. on the same day and at the same place) for the purpose of considering andif thought fit, passing the Resolution, with or without modifications, set out in the Notice ofEGM.

15. ACTION TO BE TAKEN BY SHAREHOLDERS

If a Shareholder is unable to attend the EGM and wishes to appoint a proxy to attend and voteon his behalf, he should complete, sign and return the attached Proxy Form in accordance withthe instructions printed thereon as soon as possible and, in any event, so as to arrive at 30 HillStreet #05-04, Singapore 179360 not later than 11.15 a.m. on 21 August 2006.

Completion and return of the Proxy Form by a Shareholder will not prevent him from attendingand voting at the EGM if he so wishes. In such event, the relevant Proxy Form will be deemedto be revoked.

16. LITIGATION

Neither the Company, nor its subsidiaries are engaged in any ongoing litigation as plaintiff ordefendant in respect of any claims or amounts which are material in the context of the financialposition or the business of the Company or its subsidiaries and the Directors have noknowledge of any proceedings which are pending or threatened against the Company or itssubsidiaries or of any facts likely to give rise to any litigation, claims or proceedings whichmight materially affect the financial position or the business of the Company or its subsidiaries.

27


17. CONSENT

Stirling Coleman has given and have not withdrawn its written consent to the issue of thisCircular with the inclusion herein of and references to their respective names in the form andcontext in which they each appear in this Circular.

18. DOCUMENTS FOR INSPECTION

Copies of the following documents may be inspected at the Company’s registered office at 29Tanjong Kling Road, Singapore 628054 during usual business hours on any weekday from thedate of this Circular up to the date of the EGM:

(a) the Financial Statements of the Company for FY2005;

(b) the SemBeth Sale and Purchase Agreement dated 13 July 2006 entered into betweenSSPL and SCL;

(c) the SMOE Sale and Purchase Agreement dated 13 July 2006 entered into betweenSCM and SCU;

(d) the Sallmanns Valuation Report dated 10 April 2006;

(e) the CBRE Valuation Report dated 3 July 2006; and

(f) the letter of consent referred to in section 17 above.

19. DIRECTORS’ RESPONSIBILITY STATEMENT

The Directors (including those who have delegated detailed supervision of this Circular) havetaken all reasonable care to ensure that the facts stated and all opinions expressed in thisCircular (other than the Stirling Coleman’s letter of advice to the Non-Interested Directors, theCBRE Valuation Report, Sallmanns Valuation Report and Proforma Financial Informationcontained in Appendix I, II, III and IV respectively) are fair and accurate and that no materialfacts have been omitted from this Circular which would make any statement in this Circularmisleading in any material respect, and they collectively and individually accept fullresponsibility accordingly. Where any information has been extracted from published orotherwise publicly available sources, the sole responsibility of the Directors has been to ensurethrough reasonable enquiries that such information is accurately extracted from such sourcesor, as the case may be, reflected or reproduced in this Circular.

Yours faithfullyFor and on behalf of the Board of DirectorsSembCorp Marine Ltd

Goh Geok LingChairman

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APPENDIX I

LETTER FROM STIRLING COLEMAN CAPITAL LIMITED TO THE NON-INTERESTED DIRECTORS OF SEMBCORP MARINE LTD

STIRLING COLEMAN CAPITAL LIMITED(Company Registration No. 200105040N)

4 Shenton Way #07-03SGX Centre 2

Singapore 068807

7 August 2006

To: The Non-Interested DirectorsSembCorp Marine Limited

Dear Sirs

THE PROPOSED ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF SMOE PTE LTDAND SEMBAWANG BETHLEHEM PTE LTD INCLUDING SEMBAWANG BETHLEHEM PTE LTD’SPROPERTIES’ COMPRISING LAND LOTS 958C, 990X, 1002A, 1003K, 1004N, 1005X, 1006L,1007C, 1160L, 1161C, 1192C, 1209K, 1699V, 2205M, 2206W, 2473X and 3567M of MUKIM 13LOCATED AT THE JUNCTION OF ADMIRALTY ROAD EAST AND ADMIRALTY ROAD WEST(THE “COMBINED ACQUISITION”) FOR AN AGGREGATE AMOUNT PAYABLE OFS$183,734,000

1. INTRODUCTION

This letter has been prepared for inclusion in the circular to Shareholders (“Circular”) dated 7August 2006 in connection with the proposed Combined Acquisition. Except where the contextotherwise requires, the definitions used in the Circular shall apply throughout this letter.

On 13 July 2006, the Directors of the Company announced that the Company had entered intothe SMOE Sale and Purchase Agreement dated 13 July 2006 with SCU to acquire the entireissued share capital of SMOE for a cash consideration of S$55,000,000 (subject to Completionand post-Completion adjustments). Concurrently, SSPL, a wholly-owned subsidiary of theCompany, entered into the SemBeth Sale and Purchase Agreement dated 13 July 2006 withSCL to acquire the entire issued share capital of SemBeth which assets include the SemBethProperties for a cash consideration of approximately S$11,751,000 and in addition, SSPL shallassume the net loan amount of approximately S$116,983,000 owing by SemBeth toSembCorp Financial Services Pte Ltd. Therefore, the Purchase Consideration payable by theCompany and SSPL is S$183,734,000.

Completion of the SMOE Sale and Purchase Agreement is subject to and conditional uponconcurrent completion of the SemBeth Sale and Purchase Agreement and vice versa.

The SMOE Acquisition and SemBeth Acquisition each constitutes an interested persontransaction within the meaning of Chapter 9 of the Listing Manual. The PurchaseConsideration payable for the Combined Acquisition represents approximately 17.30% of thelatest audited NTA of the Group of approximately S$1,061,944,000 as at 31 December 2005.In accordance with Chapter 9 of the Listing Manual, the Combined Acquisition is subject to theapproval of Shareholders at an EGM to be convened.

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APPENDIX I

2. TERMS OF REFERENCE

Stirling Coleman has been appointed to advise the Non-Interested Directors on whether thefinancial terms of the Combined Acquisition are on normal commercial terms and areprejudicial to the interests of the Company and the Minority Shareholders.

We were not involved in any aspect of the negotiations pertaining to the Combined Acquisition,nor were we involved in the deliberations leading up to the decision by the Board of Directorsto enter into the Combined Acquisition, and we do not, by this letter or otherwise, advise orform any judgement on the merits of the Combined Acquisition other than to form an opinion,as to whether the financial terms of the Combined Acquisition as highlighted in the Sale andPurchase Agreements, being an interested person transaction, are on normal commercialterms and are not prejudicial to the interests of the Company and the Minority Shareholders.We have confined our evaluation to the financial terms of the Combined Acquisition and ourterms of reference do not require us to evaluate or comment on the risks and/or merits of theCombined Acquisition or the future prospects of the Company or the Group, including whetherthe Combined Acquisition is commercially desirable or justifiable, and we have not made suchevaluation or comment. Such evaluation or comment, if any, remains the responsibility of theDirectors and the management of the Company, although we may draw upon their views ormake such comments in respect thereof (to the extent deemed necessary or appropriate byus) in arriving at our opinion as set out in this letter. Accordingly, it is not within our scope toconduct a comprehensive independent review of the business, operations or financial conditionof SMOE or SemBeth.

It is not within our terms of reference to compare the relative merits of the CombinedAcquisition vis-à-vis any alternative transaction previously considered by the Group ortransactions that the Group may consider in the future, and such comparison andconsideration remain the responsibility of the Directors.

We have not made an independent evaluation or appraisal of the assets and liabilities(including without limitation, real property, machinery and equipment) of the Company or of theGroup or SMOE or SemBeth and we have not been furnished with any such evaluation orappraisal, except for the independent valuation by Sallmanns (Far East) Limited (“Sallmanns”)and CB Richard Ellis (Pte) Ltd (“CBRE”) in respect of SMOE and the SemBeth Propertiesrespectively. We are not experts in the evaluation or appraisal of assets and liabilities or thedetermination of the market value of the entire equity of SMOE or SemBeth and have solelyrelied on Sallmanns and CBRE in this respect.

In formulating our opinion and recommendation, we have relied to a considerable extent on theinformation set out in the Sale and Purchase Agreements, Circular, other public informationcollated by us and the information, representations, opinions, facts and statements provided tous, whether written or verbal, by the Group and its other professional advisers. We have reliedupon and assumed the accuracy without having independently verified such informationprovided or any representation or assurance made by them, whether written or verbal, andaccordingly cannot and do not make any representation or warranty, expressly or impliedly, inrespect of, and do not accept any responsibility for, the accuracy, completeness or adequacy ofsuch information, representation or assurance. The information which we relied on were basedupon market, economic, industry, monetary and other conditions prevailing as at the LatestPracticable Date and may change significantly over a relatively short period of time.Accordingly, we do not express an opinion herein as to the prices at which the Shares of theCompany may trade upon completion of the Combined Acquisition or the future performance ofthe Company or the Group.

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APPENDIX I

We have also relied upon the responsibility statement of the Directors (including those whohave delegated detailed supervision of the Circular) that they have taken all reasonable care toensure that the facts stated and all opinions expressed in the Circular (other than this letter,the CBRE Valuation Report, Sallmanns Valuation Report and Proforma Financial Informationcontained in Appendices II, III and IV respectively) are fair and accurate and that no materialfacts have been omitted from the Circular which would make any statement in the Circularmisleading in any material respect, and they collectively and individually accept fullresponsibility accordingly. Where any information has been extracted from published orotherwise publicly available sources, the sole responsibility of the Directors has been to ensurethrough reasonable enquiries that such information is accurately extracted from such sourcesor, as the case may be, reflected or reproduced in the Circular.

In rendering our services, we have not had regard to the specific investment objectives,financial situation, tax position, tax status, risk profiles or particular needs and constraints orcircumstances of any individual Shareholder. As each Shareholder would have differentinvestment objectives and profiles, we would advise you to recommend that any individualShareholder who may require specific advice in the context of his specific investmentobjectives or portfolio should consult his stockbroker, bank manager, solicitor, accountant, taxadviser or other professional adviser immediately.

The Company has been separately advised by its own advisers in the preparation of theCircular (other than this letter). We have had no role or involvement and have not provided anyadvice, financial or otherwise, whatsoever in the preparation, review and verification of theCircular (other than this letter). Accordingly, we take no responsibility for and express no views,expressed or implied, on the contents of the Circular (other than this letter).

Our recommendation in respect of the Combined Acquisition, as set out in section 8 ofthe Circular, should be considered in the context of the entirety of this letter and theCircular.

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APPENDIX I

3. TERMS AND CONDITIONS OF THE COMBINED ACQUISITION

As set out in section 3 of the Circular and based solely upon the Circular, we note the followingprincipal terms and conditions:-

3.1 Purchase Consideration

Under the terms of the Sale and Purchase Agreements, the Purchase Consideration of theCombined Acquisition amounts to approximately S$183.7 million. The breakdown of thePurchase Consideration is as follows:-

Premium/ (Discount) of

Premium/ purchaseValuation/ (Discount) of consideration*NAV as at purchase Guaranteed over/ to

Purchase 31 December consideration **NTA as at guaranteedconsideration 2005 over/ to NAV 31 July 2006 NTA value

(S$ million) (S$ million) (%) (S$ million) (%)

SMOE 55.0 65.6 (16.2) 46.0 19.6Acquisition

SemBeth (1)128.7 (2)125.0 3.0 na naAcquisition

Combined 183.7 190.6 (3.6)Acquisition

* NAV Net Appraised Value**NTA Net Tangible Asset(1) Comprise SemBeth Properties valued at S$125.0 million and stamp duty of approximately S$3.7 million(2) Based on valuation of the SemBeth Properties as at 28 April 2006na: Not applicable

The purchase consideration for the SMOE Acquisition is S$55.0 million (subject to Completionand post-Completion adjustments). These adjustments include adjustments due to taxes,retirement gratuities, warranty claims and finalisation of accounts for each of the ExcludedProjects and was determined on a willing-buyer-willing-seller basis taking into account,amongst other factors, the Net Appraised Value (‘‘NAV’’) of SMOE valued by Sallmanns as at31 December 2005.

The amount payable for the SemBeth Acquisition is approximately S$128.7 million, comprisingcash consideration of approximately S$11.8 million and the assumption of the net loan amountof approximately S$116.9 million owed by SemBeth to SembCorp Financial Services Pte Ltd tofinance the purchase of the SemBeth Properties. The amount payable for the SemBethAcquisition of approximately S$128.7 million is supported by an independent valuation byCBRE on the SemBeth Properties as at 28 April 2006 of S$125.0 million. The purchase ofSemBeth, by the Company’s subsidiary, SSPL, will effectively allow SCM to own the SemBethProperties.

The Company and SSPL intend to fund the Combined Acquisition through its respectiveinternal funds and bank borrowings.

3.2 Conditions Precedent

The Combined Acquisition is conditional upon, inter alia:-

(a) the approval of Shareholders at a general meeting of the Company to be convened;

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APPENDIX I

(b) the completion under SemBeth Sale and Purchase Agreement and SMOE Sale andPurchase Agreement taking place contemporaneously; and

(c) there shall not be any damage by fire or other risk or contingency to any part of thepermanent buildings, structures, plant or equipment located on the SemBeth Propertieswhere the aggregate costs of reinstatement of the damaged part(s) amounts toS$600,000 or more provided that such damage shall not have been caused by anynegligent act, default or omission on the part of any SCM Group Company or its agents,contractors, employees, subtenants or licensees.

3.3 Salient Terms of the Sale and Purchase Agreements

Salient terms of the SMOE Sale and Purchase Agreement and SemBeth Sale and PurchaseAgreement and other relevant terms of the Sale and Purchase Agreements are set out insections 3.4 and 3.5 of the Circular. We recommend that the Non-Interested Directorsadvise the Shareholders to read those pages of the Circular carefully.

In summary, under the terms of the SMOE Sale and Purchase Agreement, the NTA of SMOEis predetermined to be S$46.0 million (“Guaranteed NTA”) and profits, entitlements andbenefits as well as the loss and liabilities of the Excluded Projects shall accrue to and/or beassumed by SCU. Adjustments to the purchase consideration of the SMOE Acquisition shallbe made post-Completion in respect of the following:

(i) the net profit and loss position of each Excluded Project at the end of each calendaryear for seven (7) years from the date of Completion of the SMOE Acquisition;

(ii) the claims made against or credits given to SMOE Group Companies for taxes (save forIndonesian taxes) at the end of each calendar year for seven (7) years from the date ofCompletion of the SMOE Acquisition;

(iii) the provisions made by SMOE for the retirement gratuity payable to a specified list ofunion employees at the end of each calendar year for seven (7) years from the date ofCompletion of the SMOE Acquisition; and

(iv) the receipt by SMOE Group Companies of the proceeds of the divestment of thesubsidiaries made prior to the Combined Acquisition. If the proceeds are not receivedby 31 December 2006, SCU shall pay to the Company the amount not received. If theCompany received such payment subsequently, it shall forward such receipt to SCU.

Any payments to be made by SCU to the Company due to a negative change in any of theabove situations or vice versa due to a positive change, as the case may be, shall be madewithin 10 Business Days of the Purchaser’s notice.

The SemBeth Properties are to be sold free from encumbrances, with the benefit of existingtenancies and licences subsisting as at the date of the SemBeth Sale and PurchaseAgreement.

We note that there is no profit warranty from SCU with respect to the SMOE Acquisition.In this regard, we would like to draw your attention to the sections entitled “FinancialHighlights of SMOE Group” and “Financial Review of SMOE Group” in the Circular. Inparticular, we note that SMOE Group recorded losses for FY2004 and FY2005. Themanagement of the Company (“Management”) has explained that the losses in FY2004and FY2005 were due mainly to its EPCI projects. We understand that the SMOE Grouphas since undertaken less EPCI projects and focused on its traditional corecompetencies in fabrication of FPSO topside modules and fixed platforms.

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APPENDIX I

4. INFORMATION ON SMOE

Salient information on SMOE relating to, inter alia, the history and business activities, financialinformation, financial review, key management, risk factors and competitive strengths ofSMOE, are set out in section 4 of the Circular. We recommend that the Non-InterestedDirectors advise the Shareholders to read those pages of the Circular carefully.

5. INFORMATION ON SEMBETH AND THE SEMBETH PROPERTIES

Salient information on SemBeth and the SemBeth Properties are set out in section 5 of theCircular. We recommend that the Non-Interested Directors advise the Shareholders toread those pages of the Circular carefully. As SemBeth has been inactive since its rig andshipbuilding activities were scaled down in 1999 and its assets presently comprise mainly theSemBeth Properties, our evaluation of the SemBeth Acquisition will solely be in respect of theSemBeth Properties.

6. RATIONALE FOR THE COMBINED ACQUISITION

We draw your attention to the full text of the Company’s rationale for the Combined Acquisitionas set out in section 6 of the Circular. It is important for the Minority Shareholders tounderstand the rationale of the Company in undertaking the Combined Acquisition. Werecommend that you advise the Minority Shareholders to read this section of theCircular carefully.

6.1 Key Factors

We have reviewed and noted the following key factors:-

SCM is a leading global marine engineering group specialising in a full spectrum ofintegrated solutions, ranging from ship repair, ship building, ship conversion, rig buildingto offshore engineering. The acquisition of SMOE and SemBeth will strengthen andenhance the Group’s position as a global player in the offshore oil and gas sector.

By consolidating SMOE and SemBeth, the Directors believe that the Group would be ina position to integrate and leverage on the combined facilities and resources of theGroup to grow and capture a larger market share and to become a leading global playerin the offshore oil and gas industry offering customers with innovative marineengineering solutions and services worldwide.

SMOE, an established industry leader in the engineering and construction of offshoreplatforms and floating facilities for the global oil and gas industry, and the acquisition ofSemBeth, will position the Group to capitalise on its current offshore projects and to takeon more of such projects.

The Group will be able to capitalise on the strategic location of SMOE’s fabricationfacilities and SemBeth Properties. The acquisition of SMOE would enable new offshoreFPSOs to be built and for topside fabrication activities to take place within the samegeographical location, resulting in land optimisation and cost savings through commonsharing of workshops, quays, fabrication and dock facilities. In addition, SMOE’s closeproximity to SSPL will provide the Group with a strong competitive edge in bidding forfuture FPSO topsides production modules, FPSO conversion and FPSO newbuildingprojects thereby providing customers with a complete and integrated FPSO solutions.Also, valuable waterfront land, workshop facilities and availability of a larger pool ofhuman capital and land could be optimised for rig building activities to meet the currentbuoyant rig market.

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APPENDIX I

The Group also expects to benefit from cost savings by capitalising on the strategicvalue of land and positive synergies between SMOE and the Group. The Directors are ofthe view that it is commercially beneficial for the Group to acquire the SemBethProperties. The acquisition of the SemBeth Properties would ensure that SSPL can fullyoptimise the land usage and the facilities of the entire location for its enlargedoperations, including rig building activities.

The benefits that the Group expects to reap from the acquisition of SemBeth and SMOEinclude:-

– the Management estimates a net total rental savings of approximately $130 millionover the next 22 years till the expiry of the lease of the SemBeth Properties; and

– further optimisation of the land area utilisation for rig construction, offshore andconversion and fabrication work through streamlining of activities and sharing ofcommon resources. Management estimates that this is expected to yield anannual cost savings of approximately S$5.0 million for the Group.

6.2 Risk Factors

Having considered the above, we wish to emphasise that you must highlight to theMinority Shareholders the risk factors pertaining to the Combined Acquisition, as setout under the section entitled “Risk Factors” in the Circular. We are of the view that it isimportant that the Minority Shareholders be advised to read the risks associated with theCombined Acquisition in making an informed judgement in respect of the CombinedAcquisition. It should be noted that the risk factors might not be an exhaustive listing of the riskprofile of the Combined Acquisition. However, we also note that the Company is not unfamiliarwith the assets and operations of the Combined Acquisition.

7. FINANCIAL ASSESSMENT OF THE COMBINED ACQUISITION

In assessing the financial terms of the Combined Acquisition, we have taken into account thefollowing factors, which we consider will have a bearing on our assessment:-

(a) Independent valuations by CBRE and Sallmanns;

(b) NTA Based Approach for assessment of the SMOE Acquisition;

(c) Relative valuation analysis for assessment of the SMOE Acquisition:-

(i) Share price to Book value per share;

(ii) Share price to Revenue per share;

(iii) Historical PER Comparison;

(iv) Historical EV/EBITDA Comparison; and

(d) Financial effects of the Combined Acquisition.

These factors are discussed in greater detail in the ensuing paragraphs.

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APPENDIX I

7.1 Independent Valuation

7.1.1 SemBeth Properties

As SemBeth’s assets comprise primarily SemBeth Properties, the Non-InterestedDirectors had commissioned an independent valuer to undertake a valuation exercise onthe open market value of the SemBeth Properties. Valuation of the SemBeth Propertieswas based on the Replacement Cost Method which took into account the replacementcost of the buildings and site improvements (including marine structures) lessdepreciation for physical and economic obsolescence, and the land value using theDirect Comparison Method. The amount payable for the SemBeth Acquisitionrepresents a premium of approximately 3.0% over the estimated fair market value of theSemBeth Properties, valued at S$125.0 million as at 28 April 2006 by CBRE. Thevaluation certificate of CBRE is set out in Appendix II of the Circular. We note that theamount payable for the SemBeth Acquisition of approximately $128.7 million includes astamp duty fee of approximately $3.7 million borne by the purchaser. Accordingly, if weexclude the stamp duty fee, the amount payable for the SemBeth Acquisition isapproximately equivalent to the valuation of the SemBeth Properties by CBRE.

7.1.2 SMOE

For the purposes of the SMOE Acquisition, the Non-Interested Directors hadcommissioned Sallmanns to undertake an independent valuation exercise on the NAV ofSMOE as at 31 December 2005.

The valuation process by Sallmanns involved comparing market approach, costapproach and income approach (i.e. discounted cash flow method) and selecting whatSallmanns deemed to be the most appropriate method. The reasons for Sallmanns’selected approach are:

(a) The discounted cash flow approach eliminates the discrepancy in the time valueof money by using discount rate to reflect all business risks including intrinsic andextrinsic uncertainties in relation to SMOE;

(b) The market approach is not appropriate as they have not identified any currentmarket transactions which are comparable; and

(c) The cost approach is not appropriate as it does not directly incorporateinformation about the economic benefits contributed by the subject asset.

The discounted cash flow method is based on the present worth of future economicbenefits to be derived from the projected sales income. Indication of that value isdeveloped by discounting projected future net cash flows available for payment of capitalowners’ interest to its present worth. In its valuation, Sallmanns has relied mainly on theproforma projected financial information represented by the management and directorsof SMOE, after reviewing the reasonableness of the assumptions used for the forecast.

Sallmanns has taken the following factors into account in its valuation:

(i) The nature of business of SMOE;

(ii) The financial condition of the business and the economic outlook in general;

(iii) The operation contracts and agreements in relation to the business;

(iv) The projected operating results of SMOE; and

(v) The financial and business risk of SMOE including the continuity of income andthe projected future results.

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APPENDIX I

Based on the independent valuation report by Sallmanns, SMOE’s NAV as at 31December 2005 was S$65.6 million.

Based on the independent valuation report by Sallmanns, total intangible assets ofSMOE was S$19.6 million, which was computed by deducting SMOE Group’sGuaranteed NTA of S$46.0 million from SMOE Group’s NAV of S$65.6 million.

We wish to draw to your attention that Sallmanns has highlighted the following riskfactors that may affect the result of its valuation:

“(a) Successful tendering on future projects

SMOE’s future revenue depends substantially on their ability in successfullytendering and securing future projects. Any increase in competition and failure tobid successfully targeted contracts can adversely affect SMOE’s market share andthus its financial condition, operations and prospects.

(b) Profit margin on future projects

The enterprise value of SMOE is dependent, to a large extent, upon the profitmargin of each future contract. Low contract price because of competitive bidingstrategy or insufficient cost control for future projects could have a materialadverse effect on SMOE.

(c) Subject to changes in political, economic and regulatory environment in Indonesia

Expansion in Batam yard located in Indonesia allows SMOE to increase itscapacity for future contracts. Huge capital expenditure is therefore required innext few years. The Batam yard is subject to various laws and regulationsgoverning its operations in Indonesia. Future political and economic changes inIndonesia might have either favourable or unfavourable impacts on SMOE.

(d) Realisation of Forecast and Future Plans

Sallmanns’ valuation is premised in part on the historical financial information andfuture plans provided by the management of SMOE. Sallmanns has assumed theaccuracy of the information provided and relied to a considerable extent on suchinformation in arriving at their opinion of value. Although Sallmanns has carriedout appropriate tests and analysis to verify the reasonableness and fairness of theinformation provided, events and circumstances frequently do not occur asexpected. Since projections relate to the future, there will usually be differencesbetween projections and actual results and in some cases, and those variancesmay be material. Accordingly, to the extent any of the above mentionedinformation requires adjustment, the resulting market values may differ.”

For further details of the valuation of SMOE, please refer to the valuation certificate ofSallmanns as set out in Appendix III of the Circular.

For illustration purposes only, the purchase consideration payable for SMOErepresents a discount of approximately 16.2 % to the Group’s 100% interest in the NAVof SMOE as at 31 December 2005.

We wish to highlight to your attention that the CBRE Valuation Report and theSallmanns Valuation Report are subject to certain limitations and assumptions whichare set out in Appendices II and III respectively.

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APPENDIX I

7.2 Net Tangible Asset (“NTA”) Based Approach

The NTA based approach of valuing a company is based on the aggregate value of all theassets of the company in their existing condition, after deducting the sum of all liabilities andintangible assets of the company. NTA based approach is meaningful as it shows to a largeextent to which the value of each share is backed by tangible assets and would be relevant inthe event that the company decides to realise or convert the use of all or most of its assets.However, it does not necessarily reflect the value of the company as a going concern.

The NTA based approach in valuing a company may provide an estimate of the value of acompany assuming the hypothetical sale of all its assets over a reasonable period of time atthe aggregate value of the assets used in the computation of the NTA, the proceeds of whichare used to settle the liabilities, minority interest and obligation of that company with thebalance distributed to its shareholders. However, such a hypothetical scenario is assumed tobe made without considering factors such as, inter alia, time value of money, marketconditions, legal fees, liquidation costs, taxes, contractual obligations and availability ofpotential buyers, which may result in lower value of NTA being realised.

Book NTA as reflected in the audited accounts of a company is based on the value of acompany’s net assets as determined by accounting procedures and does not necessarilyreflect the prevailing market value of the underlying assets. As such, comparisons ofcompanies using their book NTA are affected by differences in their accounting policies,especially depreciation and asset valuation policies.

Based on the undertaking on the purchase consideration of the SMOE Acquisition as set out insection 3.4 (a) of the Circular, for comparison purposes, the NTA of SMOE is taken to beS$46.0 million.

For illustration purposes only, the purchase consideration payable for SMOE represents apremium of approximately 19.6% to the Group’s 100% interest in the Guaranteed NTA ofSMOE as at 31 July 2006.

7.3 Relative Valuation Analysis

In the evaluation of the SMOE Acquisition, we have considered the range of valuation statisticsof comparable companies listed on the SGX and other stock exchanges, that are engaged inthe building and construction work of any kind in connection with the port, marine and offshoreoil and gas industries, which, in our opinion, are broadly comparable to the core business ofSMOE. We have further refined and narrowed our selection to comparable companies takinginto consideration, inter alia, other factors such as revenue and market capitalisation (“SelectedComparable Companies”).

We have had discussions with the Management about the suitability and reasonableness ofthese Selected Comparable Companies acting as a basis for comparison with the corebusiness of SMOE. Relevant information has been extracted from the annual reports and/orpublic announcements of these Selected Comparable Companies. The Selected ComparableCompanies may or may not have significant business operations or assets in Singapore andIndonesia and the accounting policies with respect to the values for which the assets or therevenue and cost are recorded may differ.

Shareholders may wish to note that there may not be any company listed on any relevantstock exchange that is directly comparable to SMOE in terms of, inter alia, size, diversityof business activities, geographical spread, track record, future prospects, operatingand financial leverage, liquidity, risk profile, quality of earnings and accounting, listingstatus and such other relevant criteria. We wish to highlight that it may be difficult to placereliance on the comparison of valuation statistics for the Selected Comparable Companies asthe business of the Selected Comparable Companies, their respective capital structures,growth rates, operating and financial leverage, taxation and accounting policies and that ofSMOE may differ. As such, any comparison made herein is necessarily limited and serves only

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APPENDIX I

as an illustrative guide to the Shareholders. The list of Selected Comparable Companies is byno means exhaustive.

Details of the Selected Comparable Companies are set out below:-

Market capitalisation

as at the Latest StockCompany Practicable Date Revenue Business Description Exchange

(S$ million) (S$ million)

McDermott Intl Inc 7,853.05 2,931.63 New York

Technip S.A. 9,395.91 10,838.91 EN Paris

Saipem S.p.A. 16,285.93 9,129.03 Milan

Hyundai Heavy 13,946.26 22,984.89 Korea SEIndustries Co., Ltd

Daewoo Shipbuilding 9,369.11 8,228.95 Korea SE& Marine Co., Ltd

Keppel Corp Ltd 12,200.55 5,675.99 SGX

SembCorp Marine Ltd 4,921.31 2,119.28 SGXShip building, ship owning, shiprepair and conversion, rig buildingand offshore engineering. Alsoprovides equipment rental,cleaning and maintenanceservices, marine, general electronicand electrical works

Offshore and marine,infrastructure, property investmentand development,telecommunications andtransportation, energy andengineering

Manufactures naval andcommercial ships

Builds ships for commercial andmilitary purposes

Construction and offshore andonshore drilling services

Designs and constructs industrialfacilities. Builds offshore facilitiesfor the petroleum industry

Engineering, fabrication,installation, procurement, research,manufacturing, environmentalsystems, project management tothe energy and power industries

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APPENDIX I

7.3.1 Share Price to Book Value per share (“P/Book”) Comparison

Company P/Book(times)

McDermott Intl Inc 98.62Technip S.A. 1.61Saipem S.p.A. 4.88Hyundai Heavy Industries Co., Ltd 2.16Daewoo Shipbuilding & Marine Co., Ltd 3.89Keppel Corp Ltd 3.20SembCorp Marine Ltd 4.41Lowest 1.61Highest 98.62Simple average 16.97

SMOE (Implied by purchase consideration and Guaranteed NTA) 1.20

Source : Bloomberg

Note: N.A. denotes not available.

For illustrative purposes only, we note that SMOE’s P/Book ratio of 1.20 times impliedby the purchase consideration for the SMOE Acquisition and the Guaranteed NTA islower than the P/Book ratio of each of the Selected Comparable Companies based onthe P/Book of each of the respective Selected Comparable Companies of between 1.61times to 98.62 times and the simple average P/Book of 16.97 times of the SelectedComparable Companies as at the Latest Practicable Date.

7.3.2 Share Price to Revenue per share (“P/Revenue”) Comparison

Company P/Revenue(times)

McDermott Intl Inc 2.31Technip S.A. 0.71Saipem S.p.A. 1.76Hyundai Heavy Industries Co., Ltd 0.46Daewoo Shipbuilding & Marine Co., Ltd 1.12Keppel Corp Ltd 1.86SembCorp Marine Ltd 2.25Lowest 0.46Highest 2.31Simple average 1.50

SMOE (Implied by the purchase consideration and unaudited proforma Revenue for financial year ended 31 December 2005) 0.17

Source : Bloomberg

For illustrative purposes only, we note that SMOE’s P/Revenue ratio of 0.17 timesimplied by the purchase consideration and the unaudited proforma revenue for thefinancial year ended 31 December 2005 is lower than the P/Revenue ratio of each of theSelected Comparable Companies based on the P/Revenue of the respective SelectedComparable Companies of between 0.46 times to 2.31 times and the simple averageP/Revenue of 1.50 times of the Selected Comparable Companies as at the LatestPracticable Date.

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7.3.3 Historical PER Comparison

SMOE’s unaudited proforma financial information for the financial years ended 31December 2001 to 2005, as extracted from section 4.5 of the Circular, is set out below:-

(S$ million) FY2001 FY2002 FY2003 FY2004 FY2005

Revenue 204.7 350.4 489.2 409.4 318.4

PATMI 8.9 11.9 13.4 (63.6) (39.7)

Notes:-

1. The Proforma Profit and Loss for the financial years ended 31 December 2001 to 2005 are preparedbased on the audited accounts of the relevant companies for the respective years. There are nochanges to the accounting policies for these companies except for the changes arising from therevisions of or new Financial Reporting Standards (FRS) which took effect over these years.Comparatives have not been restated.

2. There is no significant impact to the Proforma Profit and Loss as a result of the adoption of the FRSover the years except for the adoption of FRS39, Financial Instruments: Recognition and Measurementin year 2005.

3. The adoption of the FRS39 has resulted in the SMOE Group Companies business recognisingembedded derivatives and recognising all derivative financial instruments at fair values. These changesin accounting policies have been accounted for prospectively in accordance with the transitionalprovisions. The adoption of FRS39 has resulted in a net increase in the Proforma Profit and Loss for theyear 2005 by approximately S$7.0m. Comparatives for years 2001 to 2004 have not been restated.

The PER approach is an earnings-based relative valuation methodology that takes intoaccount the ratio of the market price per share to earnings per share.

SMOE has incurred an unaudited net loss of S$39.7 million for FY2005. Accordingly,while it is a general market practice to make reference to the range of historical PERimplied by the purchase consideration vis-à-vis the corresponding ratios of the SelectedComparable Companies to give an indication of current market expectation of broadlysimilar groups, we note that it would not be meaningful to use the historical PER as ayardstick in assessing the purchase consideration for the SMOE Acquisition, given thatSMOE has incurred net losses for FY2005.

We noted from the above table that although SMOE had been profitable from FY2001 toFY2003, losses were incurred in FY2004 and FY2005. We understand from theManagement that losses for FY2004 and FY2005 were due to unforeseen problems andcircumstances relating to EPCI projects. We understand that SMOE has sinceundertaken less EPCI projects and focused on its traditional core competencies infabrication of FPSO topside modules and fixed platforms.

7.3.4 Historical EV/EBITDA Comparison

The EV/EBITDA multiple is an earnings-based relative valuation methodology that doesnot take into account the capital structure of a company as well as its interest, taxation,depreciation and amortisation charges. Therefore, it serves as an illustrative indicator ofthe current market valuation of the business of a company relative to its pre-taxoperating cashflow and performance.

SMOE has incurred an unaudited proforma negative EBITDA of S$12.3 million for thefinancial year ended 31 December 2005. Accordingly, while it is a general marketpractice to make reference to the range of EV/EBITDA multiples implied by the purchaseconsideration vis-à-vis the corresponding multiples of the Selected ComparableCompanies to give an indication of current market expectation of broadly similar groups,we note that it would not be meaningful to use the EV/EBITDA multiple as a yardstick inassessing the purchase consideration for the SMOE Acquisition, given that SMOE hasincurred negative EBITDA for the financial year ended 31 December 2005.

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7.3.5 Summary of Relative Valuation Analysis

We wish to highlight that SMOE is itself not a listed company. Therefore, anycomparisons made in terms of P/Book, P/Revenue, PER and EV/EBITDA multipleanalysis with reference to the Selected Comparable Companies, which are all publiclisted companies, is necessarily limited. Accordingly, any comparison merely serves asan illustrative guide to the Non-Interested Directors.

From the above relative valuation analysis, we note that comparison in terms ofearnings-based approach based on PER and EV/EBITDA implied by the purchaseconsideration for the SMOE Acquisition is not meaningful due to the net losses andnegative EBITDA incurred by SMOE for the financial year ended 31 December 2005.

We note that comparison in terms of asset-based approach, the P/Book ratio implied bythe SMOE Acquisition compares favourably with those of the Selected ComparableCompanies. In addition, the P/Revenue ratio implied by the SMOE Acquisition comparesfavourably with those of the Selected Comparable Companies.

7.4 Financial Effects of the Combined Acquisition

The proforma financial effects of the Combined Acquisition are set out in section 7 of theCircular. We recommend that the Non-Interested Directors advise the Shareholders toread those pages of the Circular carefully.

A summary of the proforma financial effects of the Combined Acquisition is set out below forillustration purposes only. It should be noted that the financial information below does notnecessarily reflect the actual future financial position and prospects of the Group after theCombined Acquisition.

Effect of Combined Acquisition on NTA per Share

The financial effect of the Combined Acquisition on the NTA per Share of the Group based onthe proforma financial information provided by SMOE and SemBeth (assuming that theCombined Acquisition had taken place on 31 December 2005) is as follows:-

Before the Combined After the Combined Acquisition Acquisition

NTA (S$’000) 1,061,944 1,052,944NTA per Share (cents) 73.22 72.60

Effect of Combined Acquisition on earnings per Share

The financial effect of the Combined Acquisition on the EPS of the Group based on theproforma financial information provided by SMOE and SemBeth (assuming the CombinedAcquisition had taken place on 1 January 2005) is as follows:-

For the Year Ended 31 December 2005

Before the Combined After the Combined Acquisition Acquisition

Net profit after tax attributable to 121,398 123,874Shareholders (S$’000)

Basic EPS (cents) 8.45 8.62Fully diluted EPS (cents) 8.25 8.41

Note:- The net profit after tax attributable to shareholders and EPS are based on the adjusted Proforma SMOE Groupof Companies from S$8,047,000 to S$1,834,000 to align with SCM’s Group accounting treatment.

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Effect of Combined Acquisition on gearing

The Group will be using its internal resources and borrowings to fund the CombinedAcquisition and will still be in net cash position after the Combined Acquisition.

8. OTHER RELEVANT FACTORS FOR CONSIDERATION

We advise that you highlight the following factors to the Minority Shareholders, whichshould be considered, together with other comments and issues raised in this letter and thecontents of the Circular.

8.1 Rationale for and Benefits of the Combined Acquisition

The full text of the rationale for and benefits of the Combined Acquisition is set out insection 6 of the Circular and we would recommend you to advise the MinorityShareholders to read this section of the Circular carefully.

Particularly, we note that the Directors are of the view that the Combined Acquisition isexpected to enhance the Group’s leading position in the engineering and construction ofoffshore platforms and floating facilities for the global oil and gas industry. We note the positivesynergies and potential cost savings from amalgamating the expertise and facilities of SMOEwith the Group. This is expected to yield an annual cost savings of approximately S$5.0 millionfor the Group. The Directors also recognised commercial benefits from the acquisition of theSemBeth Properties, which among other benefits, a net total rental savings of approximatelyS$130.0 million that can be derived over the next 22 years till the expiry of the lease of theSemBeth Properties.

8.2 SMOE’s Track Record Excluding EPCI Contracts

(S$ million) FY2001 FY2002 FY2003 FY2004 FY2005

PATMI (including EPCI contracts) 8.9 11.9 13.4 (63.6) (39.7)

PATMI (excluding EPCI 8.9 11.9 7.6 (8.8) 8.0contracts)

The Management has identified that the main reason for the losses suffered by SMOE forFY2004 and FY2005 was due to losses from EPCI related projects. EPCI contracts alonecontributed losses of approximately S$54.8 million and S$47.7 million for FY2004 and FY2005respectively.

Loss for FY2004 was also due to other reasons such as overheads not absorbed as non EPCIprojects in FY2004 comprised only 17% of its total revenue in FY2004 and also the lossincurred by its new Batam yard which was only operational in FY2005.

Since FY2004, SMOE has not entered into any new contracts with offshore installationcomponent, and focused on executing and delivering the orders on hand profitably. SMOE hasalso embarked on an enterprise-wide risk management processes to tighten its systems andprocesses.

In FY2005, SMOE would have been profitable if we exclude the losses from EPCI contractsdue to contributions from the non EPCI projects undertaken.

8.3 Possible Tax Impact from the SemBeth Acquisition

We have been advised by the Management, that SemBeth has tax losses of approximatelyS$47.0 million that is available for set-off against future taxable income over the next 2 to 3years. However, the utilisation of SemBeth’s tax losses is subjected to the shareholders’ testand applicable tax laws.

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SSPL has obtained a tax indemnity from SCL in respect of the SemBeth Acquisition wherebySCL will indemnify SSPL for any tax liability of SemBeth in respect of or as a consequence ofany event or events occurring on or before the SemBeth Acquisition or in respect of or byreference to any income, profits or gains earned, accrued, arising or received on or before theSemBeth Acquisition.

9. CONCLUSION

In arriving at our advice in respect of the Combined Acquisition, we have taken into accountfactors summarised below. Shareholders should read the following in conjunction with, and inthe context of, the full text of this letter.

a) Given that the Combined Acquisition is conditional upon the completion under SemBethSale and Purchase Agreement and SMOE Sale and Purchase Agreement taking placecontemporaneously, it is appropriate for us to consider both SMOE Acquisition and theSemBeth Acquisition collectively. In this regard, the Purchase Consideration for theCombined Acquisition of approximately S$183.7 million represents a discount ofapproximately 3.6 % to the aggregate Appraised Value of the Combined Acquisition,comprising the SemBeth Properties and the Group’s 100% interest in the entire issuedshare capital of SMOE, of approximately S$190.6 million as at 31 December 2005;

b) The amount payable for the SemBeth Acquisition represents a premium ofapproximately 3.0% to the estimated fair market value of the SemBeth Properties,valued at S$125.0 million by CBRE. However, if we exclude the stamp duty fee of $3.7million borne by the purchaser, the amount payable is approximately equivalent to thevaluation by CBRE;

c) The purchase consideration of S$55.0 million for SMOE represents a discount ofapproximately 16.2% to the NAV of SMOE as at 31 December 2005, of approximatelyS$65.6 million as valued by Sallmanns;

d) The historical P/Book ratio of 1.20 times implied by the purchase consideration for theSMOE Acquisition and the unaudited proforma book value as at 31 December 2005 isbelow the simple average and lower than the P/Book of the respective SelectedComparable Companies of between 1.61 times to 98.62 times as at the LatestPracticable Date;

e) The historical P/Revenue ratio of 0.17 times implied by the purchase consideration forthe SMOE Acquisition and the unaudited proforma revenue for the financial year ended31 December 2005 is below the simple average and lower than the P/Revenue ratio ofeach of the Selected Comparable Companies based on the P/Revenue of the respectiveSelected Comparable Companies of between 0.46 times to 2.31 times as at the LatestPracticable Date;

f) SMOE had reported losses for the past 2 financial years, FY2004 and FY2005. Hence,comparison in terms of earnings-based approach based on PER and EV/EBITDAimplied by the purchase consideration for the SMOE Acquisition will not be meaningfuldue to the net losses and negative EBITDA incurred by SMOE Group for FY2005.However, we note that the losses were due to unforeseen problems and circumstancesrelating to EPCI projects. EPCI contracts alone accounted for losses of approximatelyS$54.8 million and S$47.7 million for FY2004 and FY2005 respectively. As set out insections 4.5 and 4.6 of the Circular, had it not been for the EPCI projects, SMOE wouldhave been profitable for FY2001 to FY2005, except for FY2004. As represented by theManagement, SMOE has since undertaken less EPCI projects and focused on itstraditional core competencies in fabrication of FPSO topside modules and fixedplatforms;

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g) The rationale for and benefits of the Combined Acquisition including the potentialsynergy between SCM and SMOE, including the benefits highlighted under section 6 ofthe Circular and section 6 of this letter; and

h) The Combined Acquisition is expected to have a positive effect on the earnings perShare but a negative effect on the NTA per Share of the Group, though both are notmaterial, as illustrated by the financial effects computation set out in the section entitled“Financial Effects of the Combined Acquisition” in the Circular.

Having regard to the considerations set forth in this letter, and notwithstanding thenegative effect on the NTA per Share of the Group highlighted in item h above, StirlingColeman is of the opinion that, based on the information available as at the LatestPracticable Date, the financial terms of the Combined Acquisition are on normalcommercial terms and are not prejudicial to the interests of the Company and itsMinority Shareholders.

This letter is addressed to the Non-Interested Directors for their benefit, in connection with andfor the purpose of their consideration of the Combined Acquisition, but any recommendation tothe Minority Shareholders remain the responsibility of the Non-Interested Directors.

The Non-Interested Directors should note that trading in the shares of the Company is subjectto possible market fluctuations and, accordingly, our advice on the Combined Acquisition doesnot and cannot take into account the future trading activity or patterns or price levels that maybe established for the shares of the Company as these are governed by factors beyond theambit of our review and would not fall within our terms of reference in connection with theCombined Acquisition.

This letter is governed by, and construed in accordance with, the laws of Singapore, and isstrictly limited to the matters stated herein and does not imply by implication to any othermatter. Nothing herein shall confer or be deemed or is intended to confer any right of benefitto any third party and the Contracts (Rights of Third Parties) Act (Chapter 53B) and any re-enactment thereof shall not apply.

Yours faithfullyFor and on behalf of

STIRLING COLEMAN CAPITAL LIMITED

ANG KAY TIONG LUCY LIMCHIEF EXECUTIVE OFFICER EXECUTIVE DIRECTOR

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THE CBRE VALUATION REPORT

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THE SALLMANNS VALUATION REPORT

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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SEMBCORP MARINE LTD(Incorporated in Singapore)

(Company Registration No.: 196300098Z)

NOTICE IS HEREBY GIVEN THAT an Extraordinary General Meeting of the Company will be held at29 Tanjong Kling Road, Singapore 628054 on 23 August 2006 at 11.15 a.m. (or as soon as theconclusion of the Extraordinary General Meeting to approve the proposed acquisition of 110,400,000ordinary shares in the issued share capital of Cosco Corporation (Singapore) Limited to be held at11.00 a.m. on the same day and at the same place) for the purpose of considering and, if thought fit,passing the following resolution, with or without amendment:

ORDINARY RESOLUTION

That:

(a) Pursuant to Chapter 9 (as an interested person transaction) and of the SGX-ST ListingManual, approval be and is hereby given for the following:

(i) acquisition by the Company of the business and the entire issued and paid up capital inSMOE Pte Ltd, excluding all past projects except for the Bohai Project, Kerisi Projectand any new project secured in 2006, from SembCorp Utilities Pte Ltd (“SCU”) pursuantto, and on the terms of the sale and purchase agreement dated 13 July 2006 enteredinto between the Company and SCU; and

(ii) acquisition by Sembawang Shipyard Pte Ltd (“SSPL”) of Sembawang Bethlehem Pte Ltd,which assets include the SemBeth Properties comprising of land lots 958C, 990X,1002A, 1003K, 1004N, 1005X, 1006L, 1007C, 1160L, 1161C, 1192C, 1209K, 1699V,2205M, 2206W, 2473X and 3567M of Mukim 13 pursuant to, and on the terms of thesale and purchase agreement dated 13 July 2006 entered into between SSPL andSembawang Corporation Limited;

for an aggregate consideration of S$183,734,000.

(b) the Directors of the Company (or any one of them) be and are hereby authorised to take suchsteps, make such arrangements, do all such acts and things and exercise such discretion inconnection with, relating to or arising from the matters contemplated herein, as they (or he)may from time to time consider necessary, desirable or expedient to give effect to such mattersand this Resolution as they (or he) may deem fit.

By Order of the Board

Kwong Sook May (Ms)Company Secretary

Singapore7 August 2006

IMPORTANT: Please read notes below.

NOTES:

1. A member entitled to attend and vote at the Extraordinary General Meeting is entitled to appoint no more than twoproxies to attend and vote on his behalf and such proxy need not be a member of the Company.

2. A member of the Company which is a corporation is entitled to appoint its authorised representative or proxy to vote onits behalf.

3. The instrument appointing a proxy or proxies must be under the hand of its attorney or a duly authorised officer.

4. An instrument of proxy must be lodged at 30 Hill Street #05-04, Singapore 179360 not later than 48 hours before thetime appointed for the Extraordinary General Meeting.

PROXY FORM

SEMBCORP MARINE LTD(Incorporated in the Republic of Singapore)Company Reg. No. 196300098Z

EXTRAORDINARY GENERAL MEETINGPROXY FORM

*I/We (Name)

of (Address)

being a member/members of SembCorp Marine Ltd (the “Company”) hereby appoint:

Name Address NRIC/ Proportion ofPassport Number Shareholdings (%)

and/or (delete as appropriate)

as my/our proxy/proxies to attend and to vote for me/us on my/our behalf and, if necessary, todemand a poll, at the Extraordinary General Meeting of the Company to be held at 29 Tanjong KlingRoad, Singapore 628054 on 23 August 2006 at 11.15 a.m. (or as soon as the conclusion of theExtraordinary General Meeting to approve the proposed acquisition of 110,400,000 ordinary sharesin the issued share capital of Cosco Corporation (Singapore) Limited to be held at 11.00 a.m. on thesame day and at the same place) and at any adjournment thereof.

(Please indicate with an “X” in the spaces provided whether you wish your vote(s) to be cast for oragainst the Resolution as set out in the Notice of Extraordinary General Meeting. In the absence ofspecific directions, the proxy/proxies will vote or abstain as he/they may think fit, as he/they will onany other matter arising at the Extraordinary General Meeting).

For Against

Ordinary ResolutionTo approve the proposed acquisition of the business and entire issuedshare capital of SMOE Pte Ltd and Sembawang Bethlehem Pte Ltd, whichassets include the SemBeth Properties comprising of land lots 958C,990X, 1002A, 1003K, 1004N, 1005X, 1006L, 1007C, 1160L, 1161C,1192C, 1209K, 1699V, 2205M, 2206W, 2473X and 3567M of Mukim 13)located at the junction of Admiralty Road East and Admiralty Road West.

Dated this day of 2006

Signature(s) of Member(s) or Common Seal

IMPORTANT: PLEASE READ NOTES TO PROXY FORM OVERLEAF.

Total number of Shares held

IMPORTANT

1. For investors who have used their CPF moneys to buy shares inthe capital of SembCorp Marine Ltd, this Circular is forwarded tothem at the request of their CPF Approved Nominees and is sentFOR INFORMATION ONLY.

2. This Proxy Form is not valid for use by such CPF investors andshall be ineffective for all intents and purposes if used orpurported to be used by them.

NOTES TO PROXY FORM:

1. Please insert the total number of ordinary shares you hold. If you have ordinary shares entered against your name in theDepository Register (as defined in Section 130A of the Companies Act, Chapter 50 of Singapore), you should insert thatnumber of ordinary shares. If you have ordinary shares registered in your name in the Register of Members, you shouldinsert that number of ordinary shares. If you have ordinary shares entered against your name in the Depository Registeras well as ordinary shares registered in your name in the Register of Members, you should insert the aggregate numberof such ordinary shares. If you do not insert any number, this Proxy Form shall be deemed to relate to all the ordinaryshares held by you.

2. A member of the Company entitled to attend and vote at a Meeting of the Company is entitled to appoint one or twoproxies to attend and vote on his behalf. Such proxy need not be a member of the Company.

3. If the Chairman of the Meeting is appointed as proxy, this Proxy Form shall be deemed to confer on him the right tonominate a person to vote on his behalf on a show of hands.

4. Where a member appoints two proxies, the appointments shall be invalid unless he specifies the proportion of hisshareholding (expressed as a percentage of the whole) to be represented by each proxy.

5. This Proxy Form must be deposited at 30 Hill Street #05-04, Singapore 179360, not less than 48 hours before the timeset for the Extraordinary General Meeting.

6. This Proxy Form must be under the hand of the appointer or of his attorney duly authorised in writing. A corporationwhich is a member must execute this Proxy Form either under its seal or under the hand of a director or an officer orattorney duly authorised.

7. A corporation which is a member may authorise by resolution of its directors or other governing body such person as itthinks fit to act as its representative at the Extraordinary General Meeting, in accordance with Section 179 of theCompanies Act, Chapter 50 of Singapore.

8. The Company shall be entitled to reject this Proxy Form if it is incomplete, improperly completed or illegible or where thetrue intentions of the appointor are not ascertainable from the instructions of the appointor specified in this Proxy Form.In addition, in the case of a member whose shares are entered in the Depository Register, the Company may reject thisProxy Form if the member, being the appointor, is not shown to have such shares entered against his name in theDepository Register as at 48 hours before the time set for the Extraordinary General Meeting, as certified by TheCentral Depository (Pte) Limited to the Company.

9. There are no rights of appraisal or similar rights of dissenters.

10. Proxies may be revoked at any time prior to the Extraordinary General Meeting. Proxies are deemed to be revoked if aShareholder attends and votes at the Extraordinary General Meeting.

THE COMPANY SECRETARYSembCorp Marine Ltdc/o 30 Hill Street #05-04Singapore179360

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