Sabah Finance Ministry says no conflict of interest in SMJE payment of SIP's debts


KOTA KINABALU: Sabah's Finance Ministry refutes claims of a conflict of interest over state-owned SMJ Energy Sdn Bhd's (SMJE) payment of Sabah International Petroleum Sdn Bhd's (SIP) debts following its acquisition.

The Ministry's permanent secretary, Datuk Mohd Sofian Alfian Nair, explained that the state-supported corporate exercise not only reduced the high interest costs of SIP's legacy debts but also strategically re-capitalised Sabah Development Bank Bhd (SD Bank) by redeeming SIP's debts owed to the bank.

He said this in response to a news report on Wednesday (May 29) quoting Sabah Opposition leader Datuk Seri Mohd Shafie Apdal, who called for a probe into SMJE’s affairs.

The Parti Warisan president raised questions about the debt payment, noting that SMJE's technical adviser is also the SD Bank executive chairman.

Mohd Shafie had highlighted that SMJE acquired the debt-ridden SIP through a sukuk exercise in October last year with RM900mil raised from the exercise intended to pay off the RM1.2bil debt owed to SD Bank.

He questioned why SMJE decided to settle the debt all at once instead of opting for gradual payments.

In clarifying the matter, Mohd Sofian insisted there was "absolutely no element of a conflict of interest in this corporate exercise when SMJE, SIP, and SD Bank are all ultimately owned by the State government of Sabah."

He emphasised that the Sabah government, as the owner of these GLCs, must be responsible for all historical debts.

"The state government has been decisive in dealing with the historical financial problems of SIP and SD Bank. SMJE operates under strict governance, and the board, chaired by state Finance Minister Datuk Seri Masidi Manjun, is committed to transparency and accountability.

"It is supported by experienced independent directors from both the oil and gas (O&G) and investment fields to ensure professional management," he said.

Mohd Sofian also dismissed Mohd Shafie's allegation that SMJE suffered a loss of RM7mil due to the sukuk issuance as baseless.

"As a start-up company, SMJE had to incur pre-operating costs and expenses that are irrelevant to the sukuk issued by SMJE.

"It should be noted that SMJE achieved the most competitive rates for the issuance of the first tranche of the sukuk of RM900mil, which was 3.9 times oversubscribed and described by an online business portal as the most successful non-IPO fundraising in 2023," he elaborated.

To remove any doubts, Mohd Sofian also listed several key advantages of acquiring SIP.

He said SMJE will generate significant revenue through dividends, cash flow from existing operations, and reduced debt servicing costs.

"The acquisition has added value to SMJE as a whole and enabled the consolidation of the O&G assets of the state under one corporate entity.

"Petronas LNG 9 (PLNG9) declared cash payments of RM343mil in 2023 for the 10% equity stake owned by SIP. PLNG9 generates healthy annual dividends, and through the SIP acquisition, SMJE can expect approximately RM150mil annually in dividends for the next 13 years," he said.

He also pointed out the consistent cash flow from SIP's floating production, storage, and offloading facilities (FPSOs/FSOs), where he said RM271mil had been channelled to SMJE since the acquisition.

"The acquisition also reduced SIP's debt burden, as its main challenge was the high-interest debt of its legacy loans.

"SMJE successfully issued a sukuk with a much lower interest rate. This refinancing exercise has resulted in savings of over RM60mil in financing charges in 2023 alone. Importantly, no additional debt was created at the state level," he said.

To sum it up, Mohd Sofian concluded that the acquisition of SIP has been a positive development for Sabah, and SMJE should be commended for initiating the consolidation and restructuring exercise, which benefits both SMJE and the State financially.

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