PNB in tight spot over Sapura investment

Its 40% stake value in Sapura has fallen to RM192m, less than 10% of the RM2.7b it injected in 2018


PERMODALAN Nasional Bhd’s (PNB) position as the anchor shareholder in cash strapped Sapura Energy Bhd is so deeply entrenched that the institutional investor appears to have little choice but to umbrella the oil and gas (O&G) company despite its poor financial track record.

PNB’s 2018 decision to commit to take up unsubscribed rights shares in Sapura that increased its stake to 40% from 12.16%, has necessitated the institutional investor to remain as the substantial shareholder until it could see some return to investment for the initial RM2.68 billion it forked out.

Read more: Sapura Energy posts RM8.9bil loss, reviews biz direction

Putra Business School Assoc Prof Dr Ahmed Razman Abdul Latiff believes should the fund manager decide to keep its purse strings tight, it can withstand the loss from its investment in the O&G support services provider as Sapura investment accounts for less than 1% of its assets under management (AUM).

PNB currently manages more than RM337 billion AUM.

At Sapura’s current share price of three sen per share, PNB’s 40% stake value has now reduced to RM192 million, less than 10% of the RM2.68 billion it injected in 2018, not including prior investments.

“It is important to note that PNB pays dividends to its unitholders based on dividends and capital gains it realises in its investments.

“Ceasing to be a substantial shareholder is a normal part of being an institutional investor’s much like when the Employees Provident Fund (EPF) ceased to be a substantial shareholder in Serba Dinamik Holdings Bhd last June when it reduced its 10% shareholding to less than 5% due to financial irregularities affecting the company,” he told The Malaysian Reserve (TMR).

He said attempts to throw yet another lifeboat at Sapura may be in vain, describing the company as having structural management issues that has to be dealt with beforehand.

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Ahmed Razman also refuted calls by former Prime Minister Datuk Seri Mohd Najib Razak to lend help to keep Sapura from ending up in bankruptcy.

In a Facebook posting on Sunday (March 20), Najib suggested the government protect Sapura from bankruptcy by providing loans or getting state oil company Petroliam Nasional Bhd or Khazanah Nasional Bhd to take over ownership of the group from PNB.

He added that the people would face big losses if Sapura was not saved, citing RM4 billion in losses to holders of Amanah Saham Bumiputera and RM10 billion in losses to Malayan Banking Bhd, as well as the 10,000 employees who would lose their jobs.

“The number has been blown out of proportion just to create sensational news and gain popular support from the rakyat,” Ahmed Razman told TMR.

In May 2018, EPF ceased to be a substantial shareholder of Sapura and to date, state pension fund only owns 2.89% or 22.6 million shares in the company.

“For EPF, its 2.9% stake now carries the value of RM18.5 million only, which is very little compared to its RM1 trillion of AUM. So, the negative impact to PNB and EPF caused by the current situation of Sapura will not be material or significant,” said Ahmed Razman.

In the fourth quarter ended Jan 31, 2022 (4QFY22), Sapura made a RM6.61 billion loss compared to RM216.03 million loss in 4QFY21, largely due to impairment on goodwill worth RM3.29 billion and impairment on property, plant and equipment worth RM2.1 billion.

Losses per share swelled to 41.4 sen from loss per share of 1.35 sen previously.

Read more: Sapura Energy has minimal impact on PNB

The O&G company said FY22 has been a challenging year for the group citing lack of working capital and underperforming client contracts.

An analyst who spoke on the condition of anonymity to TMR said PNB has to weigh the cost and benefit of staying on with their investment in Sapura.

Sapura is not too big to fail and its financial impact is likely to be contained, he believes.

“I think as in other investments, there must be a way for investors to exit from the investment. Perhaps this could be the right time although they may have already incurred losses. PNB’s money should be better off someplace else. Meaning they should cut the losses while they still can,” the analyst said.

For Sapura’s management, the options they have is quite clear — get bankers to restructure existing short-term loans of over RM10.5 billion to longer tenures to ease the pressure on its cash requirements as well as improve its cash inflows by selling assets and collecting on work done.

Another cash injection from existing or new shareholders look necessary to reassure lenders as well as improve Sapura’s prospects to complete its existing orderbook and a prerequisite to bid for new work tenders.