PNB staring at massive paper loss in O&G counters

Its investment in Sapura Energy alone would see PNB recording a paper loss of about RM1.1b in the last 3 months


PERMODALAN Nasional Bhd (PNB) is seeing billions of its investment in the oil and gas (O&G) sector vanish as oil prices tumble, punishing related stocks with Sapura Energy Bhd’s share price plunging to a new record low.

Oil prices fell to as much as 34% on Feb 9, which was the biggest single-day plunge of the commodity since the US invaded Iraq in 1991.

The Russia-Saudi Arabia oil price war and the coronavirus pandemic led to the crash of global oil prices, triggering alarm bells and dragging O&G counters.

PNB has a substantial shareholding in Sapura Energy, Velesto Energy Bhd and Dialog Group Bhd. Collectively, the three companies have witnessed their total market value dropping about RM6.3 billion since December.

In 2017 and 2018, PNB injected more than RM800 million into Velesto and RM2.68 billion in Sapura via two separate rights issues.

PNB’s investment in Sapura Energy alone would see the country’s largest fund manager recording a paper loss of about RM1.1 billion in the last three months.

At the end of December 2019, Sapura’s share price was trading at 27 sen a share. The counter settled at 10.5 sen or 61.1% lower last Friday, valuing the company at only RM1.68 billion.

In the last 12 months, Sapura Energy’s share has tanked to a new low of eight sen from a high of 37 sen. At its peak, the share reached a high of RM4.94 at the end of 2013 when Brent was trading at above US$100 (RM427.92).

But the global oil crash, which began in early 2015, has taken a toll on the company.

Sapura Energy raised about RM4 billion from a rights issue early last year and turned PNB and its associated funds into its largest shareholder with a combined 40% interest from 12.6% previously. The rights issue price was set at 30 sen.

The unsubscribed portion or 1.85 billion units were taken by joint underwriters — Maybank Investment Bank Bhd, CIMB Investment

Bank Bhd and RHB Investment Bank Bhd — who would also be reeling with paper losses.

PNB also has a 62% equity interest in Velesto. The stock fell from 38.5 sen early this year to RM1.52 billion as of last Friday.

Velesto’s debt risk has risen five levels, according to a Bloomberg Model. PNB’s market value in the rig operator has thinned by about RM700 million.

Velesto returned to profitability in its financial year ended Dec 31, 2019 (FY19), after four consecutive years of losses. Sapura Energy, however, remains in the red, with its third straight quarterly loss recorded in December.

Sapura Energy’s orderbook stands at RM15.1 billion with cumulative new contract wins to date in FY20 of RM3.7 billion.

As for Velesto, analysts are mostly upbeat of the company’s prospects on the prospects of dividends. Velesto has proposed to undertake a capital reduction exercise to offset RM2.2 billion of its issued share capital against its accumulated losses of RM2.1 billion as at FY19.

Analysts view this in a positive light as it sets the company up for potential future dividend payment in view of its return to profitability and positive cashflow.

MIDF Amanah Investment Bank Bhd said the sharp plunge in oil price will definitely hit the upstream exploration and production players like Sapura Energy, given that oil productions are directly correlated to the oil price.

“In a prolonged oil price war environment, globally, we anticipate oil majors to cut or delay some portion of their planned capital expenditures for 2020, which in turn could potentially result in delayed contract awards for the O&G service providers,” it said.