KUALA LUMPUR (June 14): Sapura Energy Bhd’s external auditor Ernst & Young PLT has expressed its unqualified opinion with material uncertainty relating to the group's going concern, in respect of the financial statements for the year ended Jan 31, 2023 (FY2023).
An extract of the auditor's report, filed with Bursa Malaysia by Sapura Energy, noted that the group and the company posted a net loss of RM3.16 billion and RM3.67 billion respectively for FY2023, and that their current liabilities exceeded their current assets by RM12.66 billion and RM1.75 billion respectively.
“The group is facing severe liquidity constraints,” Ernst & Young noted in its report.
Among the key audit matters in the report is that the carrying values of the group’s goodwill and property, plant and equipment (PPE) amounted to RM239.1 million and RM5.08 billion respectively, which collectively represents 42% of the group’s assets.
In relation to PPE (including vessels), Sapura Energy has identified them to be tested for impairment in view of the group’s loss-making position, continued challenges and volatility within the oil and gas industry, noted the auditor.
“Due to the significance of the carrying values of goodwill and PPE, and the complexity and subjectivity involved in the impairment assessment, we considered this as an area of audit focus,” added Ernst & Young.
The auditor also noted in its report that Sapura Energy and 22 of its subsidiaries have obtained restraining orders which will expire on June 11, and that the group is in the process of undertaking schemes of arrangement (SOA).
Ernst & Young said these events or conditions indicate the existence of material uncertainties that may cast significant doubt on the group’s and the company’s ability to continue as a going concern.
"Nevertheless, the financial statements of the group and of the company have been prepared on a going concern basis, the validity of which is highly dependent on obtaining extensions of the restraining orders; the successful and timely implementation of the proposed SOA which requires the applicants to secure approvals from at least 75% of the scheme creditors in the court-convened meetings; and the financial assistance from a white knight," the auditor added.
"Should the going concern basis for the preparation of the financial statement be no longer appropriate, adjustments would have to be made in the financial statements relating to the amounts and classification of the assets and liabilities. No such adjustments have been made to these financial statements."
It should be noted, however, that Sapura Energy's restraining orders were earlier this month extended by an additional nine months, to March 10, 2024.
Also, Sapura Energy was on Tuesday granted a six-month extension till Nov 30 to submit its regularisation plan to the relevant regulatory authorities to enable it to get out of its Practice Note 17 (PN17) status.
As such, Sapura Energy is in the midst of restructuring the group through a reset plan “to divest non-core businesses and assets, improve bidding and project delivery capabilities, continue to secure contracts with acceptable margins and cash flows, and implement a robust financial framework to ensure financial discipline.”
The group’s board expects that with the extension of the restraining order and with standstill arrangements with financiers in place, a mutually beneficial scheme of arrangements is likely to be agreed with the scheme creditors by achieving majority support in the court-convened meetings within the stipulated time frame.
Sapura Energy’s share price closed half a sen or 14.29% higher at four sen on Wednesday, valuing the group at RM559.27 million.