This article first appeared in The Edge Malaysia Weekly on August 14, 2023 - August 20, 2023

THE trading volume of Practice Note 17 (PN17)-classified Sapura Energy Bhd (SEB) has picked up over the past couple of weeks, prompting market watchers to suggest the emergence of new shareholders in the oil and gas service provider.

Last Tuesday for instance, SEB’s trading volume swelled to 506.55 million shares, which nudged its daily average trading volume for the week to 110.85 million shares. In contrast, in July, the counter’s daily trading volume averaged 6.35 million shares. Even without the huge number of shares changing hands on Tuesday, SEB’s trading volume has picked up.

Channel checks by The Edge with industry players and market watchers on the sudden interest in SEB suggest that a Middle Eastern party could be acquiring the company’s stock on the open market.

It is worth noting that in March this year, The Edge, citing court documents on SEB’s restructuring, indicated that a party from the Middle East had expressed interest in being a white knight to SEB via a capital injection of RM1.8 billion cash. This white knight is said to be a Qatar-based oil and gas entity.

More recently, there has been speculation that Abu Dhabi National Oil Company, or ADNOC as it is popularly known, has been accumulating SEB’s stock on the open market, but this is not related to the company’s ongoing restructuring exercise, and is still conjecture at press time.

SEB in an email response to The Edge on whether ADNOC is buying its shares says, “Presently, there is no change in our substantial shareholding. SEB is committed to adhering to the disclosure rules set by Bursa Malaysia, and will provide timely and transparent information to shareholders when required. The group’s current focus is on completing its debt restructuring exercise and implementing operational improvements to ensure the company regains its financial footing for future sustainability.”

SEB’s two substantial shareholders are state-controlled unit trust outfit Permodalan Nasional Bhd (PNB), which has 40% equity interest, and Brothers Capital Sdn Bhd, which has a 14% stake. Brothers Capital is the vehicle of Tan Sri Shahril Shamsuddin and his brother Datuk Shahriman Shamsuddin. Shahril helmed SEB from its inception in 2011 after SapuraCrest Petroleum Bhd, in which he was the largest shareholder, merged with Kencana Petroleum Bhd.

ADNOC, meanwhile, did not respond to questions from The Edge. ADNOC is a diversified energy group, operating across the energy value chain and is a state-controlled entity.

The CEO of a publicly traded oil and gas company on Bursa Malaysia says, “I’ve heard it is a Middle Eastern party [that’s acquiring SEB’s stock] … it makes sense, they (SEB) earn in US dollars, their assets are built and traded in US dollars, but their shares are traded in ringgit, which at about four or five sen has very little downside.”

However, a fund manager says he is sceptical of ADNOC or any other large oil and gas outfit buying into SEB as it is in the cash-strapped PN17 category.

“Maybe after SEB’s restructuring (slated for November this year) and after it exits PN17, I would believe ADNOC or any other party buying in, for now I have my doubts on the likelihood of ADNOC or anyone buying in,” he says.

SEB’s share price hit its 52-week low of three sen on May 24 but had rebounded by 50% to close at 4.5 sen last Friday for a market capitalisation of RM719.1 million. At current exchange rates, SEB is trading at less than one US cent a share. This is in stark contrast to the company’s total assets of RM12.84 billion as at end-April this year.

Despite its huge asset base, SEB has seen better days. For its first financial quarter of FY2024 ended April 30, 2023 (1QFY2024), SEB made a net profit of RM146.09 million from RM951.73 million in revenue. For the corresponding period a year ago, SEB raked in a net profit of RM91.93 million from RM886.08 million in revenue.

Net profit in 1QFY2024 received a shot in the arm from foreign exchange gains that amounted to RM217.62 million.

As at end-April this year, SEB had cash, deposits and bank balances of RM840.19 million, and short-term debt commitments of RM10.77 billion, and no long-term borrowings.

To put things in perspective, SEB’s finance cost for the three months ended April this year was RM185.08 million, up from RM125.39 million in the corresponding three months a year ago. Annualising its finance cost would indicate that FY2024’s interest payments would amount to RM740.34 million.

SEB also had accumulated losses of RM16.67 billion, resulting in a shareholders’ deficit of RM3.35 billion as at end-April, 2023. SEB’s net liabilities per share was 21 sen for the period in review.

A source familiar with developments at SEB says almost all its major assets have locked in charter contracts, which means it should be generating profits, and all the previous contracts that were difficult to honour — because of low margins or other challenges — have been renegotiated.

Meanwhile, SEB’s largest shareholder, PNB, must be watching the events with bated breath, as it had taken a hit from its foray into SEB. PNB came to have a 40% stake in SEB after the oil and gas company made a cash call in 2018 to raise RM4 billion — RM3 billion from a five-for-three renounceable rights issue at 30 sen each, and RM1 billion via a two-for-five renounceable rights issue of new Islamic redeemable convertible preference shares at 41 sen each. PNB took up unsubscribed rights shares, resulting in its shareholding ballooning to 40% from 12.6%, making it the largest shareholder.

PNB pumped RM2.68 billion into SEB, over and above the amount utilised for it to accumulate the 12.6% it already had in SEB prior to the cash call. PNB’s 40% stake as at SEB’s close last Friday is worth RM287.64 million. 

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