Any bailout cheques to Sapura Energy should come with strings attached, say analysts

It cannot expect a costly rescue without sensible business and corporate conditions from institutional investors and Petronas for having to ‘share the pain’

by PRIYA VASU / pic credit: ANNUAL REPORT

INVESTORS that may be looking at injecting fresh cash into debt-laden Sapura Energy Bhd will have to impose hefty conditions on the company to achieve a significant return for the risk the possible financiers might take.

Experts who spoke on the condition of anonymity to The Malaysian Reserve said while it’s understandable for businesses across all sectors to have suffered the macro-economic repercussions of Covid-19, Sapura Energy has been suffering from cashflow and management structural issues long before the global business setback caused by the pandemic.

“Any efforts to handout cash or equity injection should be done in a very sensible manner so as to not to cause any more excessive financial burden to investors who might be looking into rescuing Sapura Energy,” said the expert.

Potential investors would have to employ a fine-tooth comb on Sapura Energy’s financial management by not allowing the company to make any dividend payouts, share buy-backs, give bonuses, or any other similar remuneration to people at top management and board of directors.

Sapura Energy last paid a dividend on May 30, 2019, for 0.5 sen after posting a net profit of RM500 million for its fourth quarter ended on Jan 31, 2019.

Sapura Energy has not undertaken any share buy-back exercises in the past according to its stock exchange records.

Former CEO Tan Sri Shahril Shamsudin, who retired in March 2021, purportedly earns RM10 million a year in royalties for the use of the name “Sapura Energy” despite the company’s dismal financial performance.

Shahril is still a substantial shareholder with a 13.91% direct and indirect stake in Sapura Energy.

The expert said Sapura Energy should not be allowed to participate in aggressive commercial expansion without doing prior due diligence with its potential financiers.

“I think this is the only way people who put money in Sapura Energy would have the upper hand in the company’s direction and financials. Having more control means they can ensure Sapura Energy will follow its turnaround strategy. This would also possibly protect other smaller oil and gas services companies and vendors that might want to do business with Sapura Energy,” he added.

Recently Malay daily Berita Harian reported Sapura Energy has not made payments to vendors involved in the gas production in Pegaga gas field, offshore Sarawak.

Abu Dhabi-based international energy company, Mubadala Petroleum, has commenced its first gas production from the Pegaga gas field in Block SK320.

It was also reported that Sapura Energy owes some RM3.3 billion to its vendors for works commissioned in the past.

He added the Sapura Energy boards should also be obliged to put forward sustainable and feasible restructuring plans to withstand any economic conditions.

Sapura Energy has already appointed restructuring specialist Cosimo Borrelli as its non-independent and non-ED to exclusively restructure the company, the firm bourse filing last Friday showed.

In recent weeks, calls to save Sapura Energy from bankruptcy have grown louder after former Prime Minister Datuk Seri Mohd Najib Razak urged the government to help the troubled company via Khazanah Nasional Bhd, Permodalan Nasional Bhd (PNB) or national oil company, Petroliam Nasional Bhd (Petronas).

In a Facebook posting on March 20, Najib stated people would face big losses if Sapura Energy 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.

However, economists and experts refuted Najib’s claim, since PNB’s exposure to Sapura Energy is much lower and could write off the initial investment it injected into the company.

At Sapura Energy’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.

In the fourth quarter ended Jan 31, 2022 (4Q22), Sapura Energy made RM6.61 billion loss compared to RM216.03 million loss in 4Q21, 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.