Sapura's long search is finally over


SAPURA Telecommunications Bhd's (Sapura) search for a meaningful core business is finally over with its recent acquisition of a 38.56 per cent stake in Crest Petroleum Bhd, a company whose mainstay is in offshore drilling, marine installations and marine construction. 

The stake, which Sapura is acquiring from Renong Bhd, costs some RM105.2 million and will strengthen Sapura's presence in the oil and gas sector, after the company first ventured into the business with Sapura Energy Sdn Bhd back in 1997.  

Sapura Energy specialises in maintenance services for the oil and gas, marine and power utility sectors. 

Sapura's managing director Datuk Shahril Shamsuddin has said during the week that the acquisition of Crest offered Sapura a vehicle to explore oil and gas, and enhance Sapura's position in the Malaysian oil and gas sector.  

Sapura will also make a mandatory general offer for the remaining shares it does not own in Crest at RM3.60 a share. The proposed selling price for Crest is at a premium to market but 17 per cent discount to its net tangible asset as at end Sept 2002.  

A research house says that the control of Crest from the cash strapped Renong to the financially strong Sapura should be a positive development, but management wise, it is hard to see the potential value add. 

Other substantial shareholders of Crest include the Employees Provident Fund (EPF) with 7.83 per cent, Trinkaus Inhouse Portfolio holding 2.72 per cent and Amanah Saham Sarawak with 2.32 per cent.  

The acquisition of Crest is part of Sapura's restructuring plan, after selling off its stake in debt-ridden TIME Dotcom Bhd to state run Khazanah Nasional Bhd, a deal which earned Sapura some RM250 million in cash, two years ago. 

The acquisition of Crest by Sapura has received mixed reactions from the analysts' fraternity, with some questioning the wisdom of the company taking over the operational challenges currently plaguing the oil and gas company, with most fearing the change in Sapura's business exposure, and the company's risks return profile registering negative results for Sapura. 

Crest for its financial year ended Dec 31 2002 is forecast to rake in a net profit of RM29.4 million from a RM537 million turnover by Multex Global Estimates, a daunting task considering the company up until the third financial quarter ended Sept 30 had registered a net loss of RM17.36 million on the back of a RM454.74 million turnover, declining steadily from a net profit position of RM27.24 million and a turnover of RM463.66 million. 

On the other hand, Sapura is loss making. Post-acquisition of Crest, Surf88 says, Sapura is estimated to turn from RM239 million net cash to about RM34 million net debt. 

Crest's earnings are currently volatile, partially attributable to the nature of Crests contracts, which are short-term in nature. Crest's has an impressive order book that stands at around RM650 million, but fears are rife with some of the contracts expiring or being terminated. 

One such contract was with Newpark Shipbuilding-Pelikan Island Inc where a contract for the refurbishment of a rig fell through apparently due to a lack of payment for invoices on the part of Crest. 

Other fears surrounding Crest include a recent cancellation of a loan facility. A financial institution recently cancelled an unutilised portion of a RM130 odd million-term loan facility citing concerns of Crest not meeting costs and delivery schedules of a project, which the institution was to finance.  

Work on the project, a rig, has since been suspended, with Crest on the look out for other sources of financing. 

Crest, however, is in a net cash position, with an estimated net cash balance of almost RM17 million as at end September last year, and borrowings amounting to RM47. 391 million and assets valued at RM331 million. 

On the flip side, other analysts say Crest may end up as the Sapura group's largest earnings contributor by the time the deal is concluded in September this year, assuming that Crest manages to return to the black this financial year ending Dec 31 with a net profit of RM30 million. 

The RM30 million net profit position a local research house says will re-rate Sapura's first quarter financial year in 2004 to RM29 million from RM12.8 million, on a pro forma basis, meaning 78 per cent of Sapura's earnings will be attributable to Crest. 

An analyst had in March last year forecasted Sapura making a net profit of RM13.6 million for the company's financial year ending Jan 31 2003.  

For the last financial quarter ended Oct 31, Sapura made a net loss of RM44.53 million from a RM132.11 million turnover, drastically reclining from a net profit position of RM6.54 million on the back of a RM78 million turnover.  

Crest's contribution to Sapura however, is totally dependant on the oil and gas company landing more contracts to replenish the current ones that are expiring or have been terminated. 

Crest is chaired by Datuk Badri Masri who is notably also on the board of directors of Westport, the third largest container terminal in the country, and former chairman and managing director of hauler, Direrdana Holdings Bhd.  

The deal, priced at RM3.60 a Crest share, has also raised eyebrows, although it has been conceded that the price is in the mid-range of Crest's last 12 months' price, which ranged between RM2.20 and RM4.20, analysts point out that the selling price is 51 per cent higher than Crest's five-day average price of RM2.39 a share. 

Sapura's largest shareholders are Uniphone Telecommunications Bhd holding 38.62 per cent, Sapura Holdings Sdn Bhd with an 18.51 per cent stake and EPF holding a 6.01 per cent stake.  

Sapura's share price, however, increased 49 sen to RM2.02 from an opening of RM1.53 on Thursday.  

Sapura hit its 52-week high of RM3.42 on April 23 last year and a low of RM1.25 on January 2 this year.  

Crest closed at RM3.36 on Thursday, increasing 14 sen from Wednesday, and climbed 83 sen from its close of RM2.53 on Tuesday.  

Of course, from the perspective of Renong, the deal has drawn positive feedback with many parties expecting it to announce more asset divestments to pare down debts in the near future. The RM105 million-proceeds raised from the disposal of Crest will be used to partly redeem Renong's special purpose vehicle bonds that will allow it an interest savings of RM10 million per year.  

Now, all eyes are on which company cement manufacturer Cement Industries of Malaysia Bhd would go to, as it is one of the assets identified for divestment in Renong's restructuring plan. 

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