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This article first appeared in The Edge Financial Daily on July 19, 2018

KUALA LUMPUR: Part of the fat salary that Sapura Energy Bhd president and chief executive officer (CEO) Tan Sri Shahril Shamsuddin draws hinges on a share covenant that he has with financial institutions, when the oil and gas group refinanced its whopping RM14 billion in borrowings.

Shahril confirmed the existence of this covenant, and it being the reason for his high remuneration package when contacted by The Edge Financial Daily.

“Yes, we have explained this in the AGM (annual general meeting). It is true that part of the remuneration package is for the share covenant that has locked up my shares in Sapura Energy.

“This means that if I sell my shares (below 10%), the loan will default. If I step down [from being the CEO], the loan will be in default as well,” said Shahril, who was grilled in the group’s AGM yesterday over his high pay of RM71.92 million in the financial year ended Jan 31, 2018 (FY18), and RM84.24 million in FY17.

Shahril is the single largest shareholder of Sapura Energy holding a 15.9% stake. The share covenant was not stated in the annual reports.

He reiterated that he did not ask for the high compensation. “My salary is determined by the board. The board is independent … I did not ask for it (compensation). It is the board which decides on this.

“When someone offers me this, of course I will accept. I am just an officer of the company. And yet I am willing to do this. I could have sold my shares at RM4 but I didn’t; I didn’t even sell a single share … the opportunity cost is far more [than the compensation],” said Shahril.

Sapura Energy’s share price has not been spared from selling pressure amid the prolonged industry downturn that began in late 2014. Its share price peaked at RM4.84 at end-December 2013. The stock tumbled to a record low of 41 sen at mid-March. It closed at 60 sen yesterday.

Shahril pointed out that the group’s remuneration committee made the recommendation to the board, and the board will decide on the proposals.

Sapura Energy’s board remuneration committee consists of its chairman Datuk Hamzah Bakar, independent director Mohamed Rashdi Mohamed Ghazalli and Shahril.

On the share covenant, it started back in FY14, according to Shahril. “With the loan refinancing, we managed to get better rates with an average of about 5%, compared with others in the industry that are paying 6% to 7%,” he said.

The group’s annual reports indicated that Shahril’s salary was above the RM80 million band between FY14 and FY17. His remuneration package, however, shrank slightly to RM71.92 million in FY18 when the group dipped into the red with a net loss of RM2.5 billion, dragged down by a massive RM2.13 billion impairment provision.

“They (shareholders) said my remuneration is too high. As a shareholder, I respect that. But one thing that people don’t see is the effort that the management has put in place for future growth,” he said.

“The company should be measured relative to others that have gone bust locally and globally. Shareholders should also evaluate us in non-financial terms, for example the PSC (production sharing contract) that we won in Mexico, the new jobs that we have gotten in Brazil ... that [contributes] a lot more to future growth,” Shahril added.

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