SINGAPORE – Sembcorp Industries has signed an agreement to sell the commercial construction business under its subsidiary to Chip Eng Seng Corp’s unit for about $49.9 million, both mainboard-listed firms said in separate bourse filings on Wednesday (Oct 2).

Sembcorp Design & Construction (SDC) will sell its commercial construction business to Chip Eng Seng Construction Pte Ltd, but will retain its defence-related construction business, transferring it to the group’s other subsidiary, Sembcorp Specialised Construction.

The price may be adjusted based on terms of the sale, which include an interest component.

Upon completion of the sale – expected by the end of the year – SDC will no longer be a part of Sembcorp.

The divestment is part of Sembcorp’s strategy to unlock value and recycle capital as it repositions to be a global integrated energy player, it said.

Chip Eng Seng said the deal would extend the group’s construction business to building, construction and construction management for competitive construction tender projects in Singapore.

It will benefit from SDC’s capability and track record, enhancing its ability to participate in tenders for a broader range of projects, such as civil engineering and building infrastructure projects, Chip Eng Seng said.

As at end August 2019, the order book for the commercial business is in excess of $300 million.

Chip Eng Seng had attributed an enterprise value of $26 million to Sembcorp’s commercial business after taking into account factors like average Ebitda (earnings before interest, tax, depreciation and amortisation) for certain financial periods, third-party financial debt and the networking capital of SDC.

The deal was struck following a competitive sale process, said Sembcorp.

Chip Eng Seng had on Sept 20 disclosed it was in discussions to fully acquire a local construction company to “strengthen the company’s construction business, with ‘a good opportunity for horizontal integration’ amid the competitive landscape for construction tenders in Singapore”.

Shares of Sembcorp closed up $0.05 or 2.4 per cent to $2.13, while Chip Eng Seng shares closed up $0.005 or 0.8 per cent to $0.63 on Tuesday.