Sapura hits new low on RM4b rights issue

By MARK RAO

The sell-off by investors of Sapura Energy Bhd’s shares is indicative of fear concerning the company’s prospects and the search for opportunities outside the oil and gas (O&G) sector.

Sapura Energy shares closed at a historic low of 37.5 sen yesterday and lost some 21.5 sen in value or RM1.29 billion in market capitalisation since last Friday when the O&G service provider announced a proposed RM4 billion rights issue.

The issuance is intended to repay group borrowings and strengthen its financial position in three businesses, namely exploration and production (E&P), drilling and engineering, and construction.

According to an industry analyst, the sell-off observed after the cash call announcement implies an issue of confidence in the company, namely its ability to turn profitable and win enough contracts to ride the downturn.

“The fall indicates investors are not encouraged by the future prospects of the company, which includes its ability to secure jobs, generate sufficient revenue and remain profitable,” the source told The Malaysian Reserve (TMR) under conditions of anonymity.

“The lack of confidence is both at the industry and company level as the public is concerned over the lack of new jobs in the market and the company’s ability to get size-able jobs to remain viable amid the cyclical downturn in the industry,”

According to the analyst, investors are looking at opportunities outside the O&G sector, while interests in the sectoral counters have been confined to Petroliam Nasional Bhd’s downstream linked stocks like Petronas Gas Bhd.

Sapura Energy has been badly hit by the industry downturn following the 2014 oil crisis, which saw crude oil prices dropping from US$100 (RM410) per barrel level to the US$50 mark.

Institutional investors like the Employees Provident Fund have sold down their interest in the company.

Sapura Energy posted a net loss of RM135.73 million for its first quarter ended April 30 (1Q19), against a RM27.53 million profit in 1Q18, as revenue slumped 40.7% to RM1.05 billion over the same period.

Despite the less than stellar financial showings of late, Sapura Energy is sitting on a sizeable RM16.7 billion order-book and is perceived as one of the better positioned firms to secure new work and contracts.

An analyst who tracks the company said the counter has been oversold as it holds long-term value for investors.

“We are in the bottom of the cycle (in the O&G industry) and are seeing request for proposals and an uptick in tender activities spread across the entire industry value chain,” the source told TMR under condition of anonymity.

“The low price to buy into Sapure Energy shares thus represents a buying opportunity for investors looking for long-term value.”

The source added that the company, due to its significantly larger market base, coupled with a relatively healthy balance sheet, is in a good position to secure sizeable and attractive contracts.

“In 2014, Sapura Energy’s addressable market was US$38 billion and limited to Australia, South-East Asia and India — today, its addressable market is global and worth US$350 billion,” the analyst said.

“Oil majors are also looking for contractors who are well-capitalised and have relatively healthy balance sheets (as opposed to companies saddled with high debt levels).”

Sapura Energy’s proposed rights issue, involving 9.99 billion ordinary shares and 2.4 billion Islamic redeemable convertible preference shares at 30 sen and 41 sen a piece respectively, will be used to finance 24.1% of its RM16.4 billion in borrowings.

This is in view of the prospective listing of its E&P business and possible strategic partnership for its drilling division. Investors are mixed over the former, while it stands to unlock value for the company, the E&P business is currently the company’s best performing asset.

Sapura Energy’s major shareholder and CEO Tan Sri Shahril Shamsuddin, meanwhile, has agreed to take up his entitlement via private vehicle Sapura Technology Sdn Bhd for a minimum amount of RM300 million. Sapura Technology Sdn Bhd holds a 16% stake in the company.

Permodalan Nasional Bhd, effectively holding a 12% interest in Sapura Energy, also committed to subscribe to its entitlement for an amount to be agreed upon a later date.

Sapura Energy’s total number of shares will increase from 5.99 billion to 15.98 billion following the completion of the rights issue, scheduled for 4Q18.