This article first appeared in The Edge Malaysia Weekly on March 17, 2025 - March 23, 2025

What is a bailout?

Cambridge dictionary: To help a person or organisation that is in difficulty, usually by giving or lending them money.

Investopedia: A bailout is when a business, an individual or a government provides money and/or resources (also known as a capital injection) to a failing company. These actions help to prevent the consequences of that business’ potential downfall which may include bankruptcy and default on its financial obligations. Businesses may receive a bailout which may take the form of a loan, purchasing of bonds, stocks or cash infusions.

So why did calling the injection of RM1.1 billion by the Ministry of Finance (MoF) into Sapura Energy Bhd (KL:SAPNRG) to enable it to pay what it owes 2,000 vendors (that is, to prevent a default of its financial obligations) a bailout kick up so much fuss and denial? Shouldn’t we call a spade a spade?

But we understand that bailout is a politically sensitive word because those in government, when they were in the Opposition, had attacked the then government for bailing out political cronies with taxpayers’ money.

In certain cases, those criticisms were valid.

For example, in 2001 the government bought a controlling 32% stake in Malaysian Airline System Bhd (MAS) from Tan Sri Tajudin Ramli for RM1.79 billion, or RM8 per share, when the market price was half that amount. RM8 was the price Tajudin paid for the stake eight years earlier, which meant he did not suffer any loss despite running the airlines to the ground. This was wrong and was the worst kind of bailout, and should never happen again.

So, how about Sapura Energy?

It is more convoluted (see the full timeline on Page 63), but the summary is that when it ran into financial difficulties, its substantial shareholder Permodalan Nasional Bhd (PNB) injected RM2.68 billion via a rights issue in 2019. Prior to that, PNB WAS NOT the controlling shareholder of Sapura Energy. The controlling shareholder and CEO was Tan Sri Shahril Shamsuddin, who was one of the two founders of the company via a much-hyped 2012 merger to create a global oil and gas (O&G) giant. The other was Tan Sri Mokhzani Mahathir, who exited in 2017 after selling his last substantial block of shares worth RM577 million for RM1.42 a piece. Mokhzani got out very well indeed as the current price is five sen.

Despite the cash injection by PNB, things got worse, not helped by the Covid-19 lockdown. But while other businesses, including those in O&G, have recovered, Sapura Energy’s RM17 billion worth of liabilities were just too large as profits plunged.

Shahril — who still has deemed interest of 10%, down from 17% in 2017 — stepped down in 2021. From being a passive investor with a 7% stake in 2017, PNB now has a 40% stake and is left to fix the problems. It has put in a new team, but it cannot inject any more cash because of internal guidelines. Instead, a court-sanctioned debt restructuring scheme which, among others, requires creditors to take a big hair cut is being implemented.

Unfortunately, vendors and suppliers are not the first in queue to be paid and will not be paid in full. This explains why the government has now stepped in with a RM1.1 billion injection, with the money to be used solely to pay the 2,000 vendors — mainly bumiputeras. The move is to save the O&G vendor ecosystem which is of strategic importance, says the government.

While bailouts are not good in general because they are the result of failures — whether due to incompetence, mismanagement or worse — some are necessary. This RM1.1 billion capital injection by MoF may be one instance of that.

Therefore, there is no need for anyone to be sensitive about it being called a bailout. They just need to explain and justify it. And yes, hold those responsible accountable for the mess they left behind.

We also trust that PNB, being the custodian of money invested with it by 16 million account holders, will do what is right to get Sapura Energy back in good shape so that it can repay MoF the RM1.1 billion. One thing we are quite sure of is that there will be no more excessive CEO remuneration of as much as RM71 million and ridiculous royalty and intellectual property rights payments to the founders amounting to a whopping RM70 million a year.

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