This article was first published in The Edge Malaysia Weekly from April 29, 2024 to May 5, 2024.

The long-awaited sale of the remaining 50% stake in SapuraOMV Upstream Sdn Bhd, the exploration and production (E&P) arm of Sapura Energy Bhd, has finally materialized. However, the largest shareholder, Permodalan Nasional Bhd (PNB), cannot breathe a sigh of relief yet.

Last week, the company announced that TotalEnergies Holdings SAS would buy a stake in SapuraOMV for US$705.3 million (RM3.4 billion).

The proposed sale will be financed with US$530.3 million in cash and the remaining US$175 million will be paid in the form of debt forgiveness related to a financing facility extended to SapuraOMV by a division of OMV AG. It’s a schedule.

Translated into ringgit, this amounts to a whopping RM2.5 billion in cash and RM836.3 million in debt relief.

Sapura Energy said in a statement to Bursa Malaysia that the proposed sale would result in a net sale gain of approximately RM793 million. In particular, the cash proceeds from the sale will be used to reduce borrowings and potentially significant unsecured creditor claims.

In January, TotalEnergies signed an agreement to acquire OMV’s 50% stake in SapuraOMV for US$903 million, including the transfer of a US$350 million loan granted to SapuraOMV by OMV. OMV purchased the stake from Sapura Energy in 2019 for US$975 million. In addition to a large rights issue, Sapura Energy undertook a sale to restore financial health.

Nevertheless, asset sales and cash appeals did little to turn around the situation five years ago.

Even the recent sale of the remaining 50% of the company’s crown jewels is unlikely to free the beleaguered oil and gas company from debt.

Sapura Energy has debts of RM10.62 billion. The sale will reduce debt by 22% to RM8.17 billion, but it is still a huge amount.

The saving grace is that financial costs will fall due to less borrowing.

BIMB Research estimates that Sapura Energy’s recapitalization will require between RM3 billion and RM4 billion.

This raises the question whether PNB will need to extend a lifeline to the group again like it did in 2018.

PNB controls 40.7% of the company’s shares, while former controlling shareholder Sapura Holdings Sdn Bhd holds a 9.18% stake. Sapura Holdings is the investment vehicle of Tan Sri Sharil Shamsuddin, co-founder and former CEO of the listed company.

In September 2018, Sapura Energy announced a RM4 billion rights issue to clean up its balance sheet, which had debts of about RM16 billion.

At that time, PNB’s shareholders were only 12.16%. The company has committed to take over the unsubscribed rights shares and has also fully subscribed to Sapura Energy’s Islamic Redeemable Convertible Company Preference Shares (RCPS-i). The group raised RM3 billion through a share issue at a price of 30 sen per share and RM1 billion through a 5:2 renounceable rights issue of new RCPS-i at a price of 41 sen per share.

PNB invested a total of RM2.67 billion to give Sapura Energy a lifeline. Its shares are valued at RM336.6 million based on last Friday’s closing price of 4.5 sen.

“I don’t think[PNB’s capital injection]is being considered for now, but let’s wait for the company to announce its final restructuring plan,” one analyst said in an interview.

Debts aside, UOB Kay Hian Research points out that Sapura Energy’s biggest challenge after selling its E&P division is declining revenue from its remaining business.

Sapura Energy is still working on fulfilling its RM5 billion order book and notes that unlike other types of rigs such as jack-ups, not all tender rig contracts have high fees or long contract terms. UOB KayHian commented that although the rig utilization rate has improved, it is still poor.

Based on previous guidance from management, the research agency said Sapura Energy needs to generate quarterly earnings before interest, tax, depreciation and amortization (EBITDA) of more than RM200 million to keep its reset plan on track. It is estimated that.

However, UOB KayHian said that the company generated only RM54 million in EBITDA in the third quarter ended October 31, 2023 (3QFY24), and that the company generated only RM54 million in EBITDA in the third quarter ended October 31, 2023 (3QFY2024), and in 4QFY2024, interest, taxes, It pointed out that the loss before depreciation and amortization was RM150 million.

One might wonder if the company will sell more assets to further reduce its debt. But analysts don’t think that will be possible at this point.

After the sale of the E&P division, Sapura Energy’s assets will consist of manufacturing yards, vessels, accommodation boats and barges, and tender rig operations.

Additionally, the company still holds exploration assets, namely the SB331 and SB332 production sharing agreements signed with subsidiary Sapura Energy Ventures in 2019.

According to UOB KayHian, Petronas has extended the concession for three years for Sapura Energy to complete minimum work commitments by November 19, 2024, with penalties to be imposed in case of non-compliance.

The company fell into Practice Note 17 status on March 31, 2022, as shareholders’ equity on a consolidated basis fell below 50% of equity.

For Sapura Energy, the deadline to submit a normalization plan is May 31st (just five weeks from now), and the clock is ticking.

The deadline has been extended twice. Will it be extended further? More importantly, if PNB does not intervene again, will a white knight emerge?

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