This article first appeared in The Edge Malaysia Weekly on September 1, 2025 - September 7, 2025
PERMODALAN Nasional Bhd (PNB) is said to be exploring options to privatise its 48%-owned Velesto Energy Bhd (KL:VELESTO) amid a challenging outlook for the oil and gas (O&G) industry. Sources say, however, that the country’s largest fund manager faces hurdles, as the other shareholders may be reluctant to accept the proposed pricing.
A source says the price tag for the privatisation may not be exciting, considering that the share price of Velesto has been subdued over the past year.
The counter closed last Friday almost flat from a year ago, at 20 sen, as investors remain wary of the O&G sector, although the group has stayed in the black since its financial year ended Dec 31, 2023 (FY2023). At 20 sen per share, Velesto is valued at RM1.6 billion.
“PNB had been exploring various ways to unlock the value of its investment in Velesto, including a plan to sell its stake in the company. But there are few local O&G companies with that kind of appetite.
“The fund is now exploring the potential privatisation of Velesto, but at what price?” a source says.
When contacted by The Edge for comment, PNB responded, stating: “PNB is unable to comment, given its policy not to comment on market speculation. As the largest shareholder in Velesto, PNB is supportive of the company’s plans to generate enhanced sustainable shareholders’ returns through increasing its order book and improved operational efficiency through disciplined cost management.”
PNB owns Velesto both directly and via its various unit trust funds.
Meanwhile, another source reckons that a privatisation of Velesto is timely, considering that the group has already significantly pared down its borrowings over the years to RM116.48 million as at June 30, 2025, compared with RM3.77 billion as at end-FY2016.
The company recently completed an RM1.2 billion share capital reduction exercise — its second in five years. The first was in February 2020, when its share capital was reduced by RM2.21 billion. A capital reduction exercise erases a company’s accumulated losses against its share capital, putting its balance sheet on a better footing for future strategic moves, including mergers and acquisitions while making it easier for dividends to be paid.
In a report on Aug 25, CGS International says it expects Velesto to dish out a bumper dividend of 1.75 sen per share, which will bring total dividends per share to 2.5 sen in FY2025. This would result in a yield of 12.5%, based on Velesto’s share price of 20 sen.
“This is because Velesto fully repaid its project financing debts on its rigs last year. We also believe Velesto can afford to raise the dividend per share to three sen in 2026/27,” says CGS International.
“Its focus has transitioned to rewarding shareholders since it also has no capital expenditure plans.”
Interestingly, Velesto was one of the top traded counters in terms of volume last week.
Meanwhile, the company’s filings with Bursa Malaysia show that Aberdeen Group plc raised its stake in the company to 7.73% on Aug 26, from 6.46% in early August.
In March, when Velesto announced its second capital reduction exercise, its president Megat Zariman Abdul Rahim said the exercise represented a significant step towards creating long-term value for shareholders.
“We believe it is ultimately about building strength and setting a solid foundation for the next phase and future distribution to shareholders. It optimises our balance sheet, puts us in a stronger capital position and even opens the door to return free cash flow to our shareholders,” he said.
Supported by higher average daily charter rates and improved utilisation, Velesto, which operates six jack-up drilling rigs and two hydraulic workover units, has reported eight consecutive quarters of earnings.
For the second quarter ended June 30, 2025 (FY2025), Velesto’s net profit fell nearly 20% to RM50.44 million from RM62.81 million a year earlier, on the back of a 49% decline in revenue to RM199.9 million, from RM393.43 million previously.
The group attributed the drop in its top and bottom lines to lower asset utilisation and completion of a project in October 2024.
Its rig utilisation rate fell to 57%, from 98% in the same quarter last year. Average daily charter rates at the company, which provides mainly offshore drilling, rose to US$123,000 compared with US$115,000 in 2QFY2024.
As at July 2025, Velesto’s outstanding jobs on hand totalled RM1.2 billion, keeping the company busy until 2028 while it bids for jobs worth RM4.3 billion.
Velesto owns and operates six jack-up rigs, making it the sole — and largest — rig service provider in Malaysia. A jack-up rig is a type of mobile offshore drilling unit used in shallow waters to drill exploratory wells and extract oil and natural gas.
Velesto was listed during the oil boom in 2013 — when it was known as UMW Oil & Gas Corp Bhd — at RM2.80. A favourite among investors, its shares traded as high as RM4.58 in 2014, with its market capitalisation reaching RM9.9 billion.
The sudden crude oil rout that started in late 2014 caught Velesto by surprise, however, as it had geared up for new drilling rigs, with its eighth rig delivered during the industry downturn in 2015.
In 2017, it undertook a recapitalisation exercise. As the industry downturn had taken a heavy toll, it made a cash call, for which PNB invested RM800 million to take up rights shares, on top of a subscription of preference shares.
Later, its major shareholder UMW Holdings Bhd distributed its 57% stake in Velesto — a move to demerge the auto distribution and heavy equipment business from its O&G unit. The proceeds from the cash call were then used to pare down RM1.5 billion in debt.
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