Monday 05 Jun 2023
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This article first appeared in The Edge Malaysia Weekly on December 5, 2022 - December 11, 2022

Following Serba Dinamik Holdings Bhd’s and Sapura Energy Bhd’s financial woes, bankers now generally shun the oil and gas (O&G) industry.

Sapura only managed to refinance its borrowings of close to RM10.3 billion in 2021 due to the presence of Permodalan Nasional Bhd (PNB) as its largest shareholder.

Under such an operating environment, Hibiscus Petroleum Bhd, a small upstream O&G company, managed to secure a line of finance amounting to US$120 million from four banks. All four banks are foreign financial institutions with a domestic presence.

The facility is Hibiscus’ maiden long-term financing line. The company operates oilfields in Malaysia and the UK and started off as a special purpose acquisition company in 2011. It ran into operational problems in the early years as its ventures to discover O&G fields did not bear fruit. After running low on cash flow, Hibiscus stayed afloat through issuances of shares, for which the capital markets punished the company.

The turning point for Hibiscus was in 2015, when it inked a deal to acquire a 50% interest in O&G assets in the UK from Shell and Esso Exploration and Production. In the subsequent years, Hibiscus also acquired operating oilfields from Shell and Repsol in Sabah and Sarawak, which beefed up its production.

Based on the latest quarterly results, Hibiscus has cash of RM727 million against debts of RM94 million. Hence, it is easy to fathom why foreign banks were prepared to give Hibiscus a line of credit.

Unfortunately, most of the other players in the local O&G industry are still unable to secure long-term financing from banks. The financial institutions cannot be faulted for the cautionary stance on O&G companies.

A banker sums up the situation well. “Bankers want to get repaid for the loans extended and do not want to end up with O&G assets. Banks do not want to get into a situation where they get paid only when the companies liquidate the assets,” he says, referring to the problems that they face with Serba and Sapura.

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