MORE challenges seem to be mounting at Sapura Energy Bhd. This week, the oil and gas (O&G) outfit saw the departure of its chief financial officer Reza Abdul Rahim. It also sought to delay the submission of its quarterly results.
However, its request for a one-month extension to announce its latest quarterly result was rejected by Bursa Malaysia.
Sapura Energy is also laden with RM10bil in debt, which is 10 times bigger than its market capitalisation of RM1.82bil.
Market sources also say that Sapura Energy is also looking to consolidate its businesses and is in the process of selling some of its assets.
“Sapura Energy is in talks with several local O&G service providers for the sale of its assets, which may be non-core to its main business,” a source says.
It is yet unknown which of its assets are earmarked for sale and the pricing it hopes to get from the exercise.
Sapura Energy has yet to respond to StarBizWeek’s queries at press time.
It is worth noting that in March, the group managed to restructure its RM10bil debt that gave the company breathing space to embark on a turnaround plan.
The refinancing also resulted in RM3.1bil of its short term debt being reclassified as long-term borrowings.
“Sapura Energy needs to focus on its core business, which is in the fabrication and engineering, procurement, construction and commissioning, for it to remain competitive, to be cost efficient and to manage its cash flow,” says a market observer.
By looking at Sapura Energy’s financials, asset monetisation would probably help the company free up some capital to finance its massive orderbook of RM13bil, and reduce its debt obligations.
In February, Sapura Energy had obtained a loan facility of up to RM700mil from Maybank. Early in November 2019, the company secured a US$135mil (RM540mil) facility from CIMB.
As of April 30, 2021 the group only had RM570.85mil in cash in its coffers, with RM10.5bil worth of debt and total assets of RM23.13bil.
Sapura Energy was once a darling stock among investors with a market value of a staggering RM29bil.
But when the oil price route hit the market in 2014, Sapura Energy was in the midst of an aggressive expansion plan. Hence it was badly hit by the oil price collapse, at a time when its debt stood at RM18bil.
That resulted in a series of impairments by Sapura Energy that took place from 2017 to 2020.
The total impairments done amount to some RM7.22bil.
The year 2019 was also notable for Sapura Energy because it had then carried out a massive rights issue that helped it raise RM4bil and which resulted in Permodalan Nasional Bhd (PNB) becoming its largest shareholder.
PNB, which currently holds 40% in Sapura Energy, had earlier said that the capital injection by the fund was “part of a comprehensive restructuring plan that would entail the monetisation of Sapura Energy’s E&P business and a spin-off of its drilling business”.
The fund had also said that it believed Sapura Energy’s recapitalisation plan had presented PNB and all its shareholders with the potential of strong returns.
This was given the attractive entry price and the position of the company to benefit from the recovery of the O&G industry.
Since then, Sapura Energy has only managed to halve its debt size.
In addition to its debt woes, it has faced other issues such as the remuneration package of its top management that was questioned by its shareholders PNB and Employees Provident Fund.
Earlier this year, Sapura Energy saw the departure of its long standing CEO Tan Sri Shahril Shamsudin, who retired after leading Sapura Energy since July 2003.
He was replaced by Datuk Anuar Taib, who has more than 30 years experience in the O&G industry having led Petronas’ upstream business and Shell Malaysia’s operations.
On a positive note, a July report by Hong Leong Investment Bank (HLIB) Research pointed out that the flurry of drilling contract wins by Sapura Energy was a “very positive” sign of the recovery of the exploration segment of O&G.
The report noted that Sapura Energy has seven active tender drilling rigs, with expectations of the group’s strong performance from the drilling segment to continue.
In addition, HLIB pointed out that towards this end Sapura Energy has improved its operational efficiencies with operating expenses down 32% year-on-year that will help it capitalise its contract wins.
“We believe Sapura Energy will be in the black from FY22 after being in the red for four consecutive years,” it said.
Despite the backdrop of improving prospects from new job wins, rising crude oil prices and improving operating efficiency, there is still much that needs to be done at Sapura Energy. T
he company needs to quickly resolve its cash flow issues and the RM10bil debt remains a huge drag.
Many investors have not forgotten how the 2014 oil price rout has affected many local O&G companies, especially those saddled with huge debts to service.
It is not known when investors are going to come back to the O&G sector in a big way.
This is despite the fact that global oil prices seem to remain at a high, trading above US$70 (RM293) per barrel this year.