This article first appeared in The Edge Malaysia Weekly on May 23, 2022 - May 29, 2022
AILING oil-and-gas outfit Sapura Energy Bhd could receive much-needed financial assistance from government-linked investment company (GLIC) Minister of Finance (Incorporated) [MoF Inc], sources familiar with the matter tell The Edge.
The GLIC was established under the Minister of Finance (Incorporation) Act 1957, which allows MoF Inc to enter into contracts, acquisitions and purchases in cases where the private sector gives less investment priority for social services to the public, to stimulate economic growth by investing in strategic sectors, and to attract local and foreign investors, among others.
Among the 70 companies under MoF Inc’s belt are Urusharta Jamaah Sdn Bhd, which took over pilgrim fund Lembaga Tabung Haji’s assets; 1Malaysia Development Bhd; SRC International Sdn Bhd; development financial institutions Bank Pembangunan Malaysia Bhd, Bank Pertanian Malaysia Bhd and Small Medium Enterprise Development Bank Malaysia Bhd; rail transport operator Keretapi Tanah Melayu Bhd; UDA Holdings Bhd; sovereign wealth fund Khazanah Nasional Bhd; and national oil company Petroliam Nasional Bhd (Petronas).
“From what I know, it is MoF Inc that will step up [and lend a helping hand to Sapura Energy]. What is being discussed at present is some sort of an assistance package ... it could be a grant of some sort and it could be announced soon,” says the source familiar with the goings-on at the Ministry of Finance.
A few weeks ago, Finance Minister Tengku Datuk Seri Zafrul Aziz was said to be working on such a proposal, but details such as which government entity would spearhead the assistance were not available.
For Sapura Energy, its problems stem from short-term debt commitments of RM10.66 billion as at end-January this year. The troubled company’s finance costs for FY2022 ended Jan 31 was a whopping RM521.87 million.
The initial talk was that Petronas would buy into Sapura Energy and inject much-needed capital. This, however, was denied by Petronas.
A market watcher says, “It would be strange. Petronas is Sapura Energy’s client. So, a client taking over its contractor? Doesn’t look good, does it?”
He adds that Sapura Energy’s largest shareholder, state-controlled unit trust outfit Permodalan Nasional Bhd (PNB), which has a 39.59% stake via its funds under the Amanah Saham banner, could get a lot of flak if it ploughs more capital into the company.
To recap, in 2018, Sapura Energy announced a cash call of RM4 billion — RM3 billion from a five-for-three renounceable rights issue at 30 sen and RM1 billion via a two-for-five renounceable rights issue of new Islamic redeemable convertible preference shares at 41 sen each. PNB also took up the unsubscribed rights shares, resulting in its shareholding ballooning up to almost 40% from 12.6%, and turning it into the largest shareholder of the company.
PNB sunk RM2.68 billion into Sapura Energy via the cash call, over and above the amount it had used to accumulate the 12.6% it already held in the company.
While the amount invested in Sapura Energy is small compared with PNB’s assets under management, which as at end-October last year came to RM337 billion, the fact is that PNB makes payments to unit holders based on capital gains from the sale of shares and dividends collected from companies. The investment in Sapura Energy has delivered neither capital gains nor dividends, and PNB’s paper losses have run into the billions.
“PNB’s unit holders will not like it [PNB investing more in Sapura Energy] and will surely question why it is injecting more funds into a PN17 (Practice Note 17 or cash-strapped) company,” the market watcher adds.
While there was talk that some large Sarawak-based companies may come in and inject fresh capital into Sapura Energy, informal checks by The Edge with two of the larger players indicate this is not the case. The two are Cahya Mata Sarawak Bhd, which is controlled by the family of former Sarawak chief minister and current governor Tun Abdul Taib Mahmud, and Naim Holdings Bhd, which has a 24.22% stake in Dayang Enterprise Holdings Bhd, one of the country’s larger oil and gas players.
Things have taken a turn for the worse at Sapura Energy, which at one time was a high-flyer with businesses in many parts of the world. In early April 2014, it had a market capitalisation of RM28.5 billion and was the world’s second largest oil-and-gas service provider after Italy’s Saipem SpA.
As last Thursday’s close of 6.5 sen, Sapura Energy’s market value had dwindled to RM973.72 million. In addition to the impact of low oil prices, the company had undertaken some ill-timed acquisitions — among them Seadrill’s tender rig business for US$2.9 billion and Newfield’s Malaysian exploration assets for US$895 million — and made some huge payouts to 13% shareholder Tan Sri Shahril Shamsudin, who helmed Sapura Energy from 2002, when it was SapuraCrest Petroleum, until 2021.
From 2014 to 2018, Shahri’s annual remuneration was between RM71.9 million and RM89.4 million, while his total income from FY2013 to FY2021 was RM443.9 million — averaging RM49.3 million per year for the nine years in review.
Sapura Energy also paid intellectual property and trademark fees amounting to RM438.4 million and office rents of RM149.4 million from FY2013 to FY2021, which also benefited Shahril, who stepped down as president and CEO in April 2021, among others.
For its financial year ended Jan 31, 2022, Sapura Energy suffered a net loss of RM8.89 billion from RM4.13 billion in revenue. At the time, the company had cash and cash equivalents of RM717.75 million, short-term borrowings of RM10.66 billion and no long-term debt commitments. It also had accumulated losses of RM13.52 billion.
With MoF Inc on its side, will Sapura Energy turn the corner and regain some semblance of its old self, or has it gone too far down the slippery slope?
Save by subscribing to us for your print and/or digital copy.