A mammoth process for Sapura Power

“The primary precedence is to outlive 2022,” quips Datuk Anuar Mohd Taib, group CEO of beleaguered Sapura Power Bhd,

The oil and fuel (O&G) stalwart, who was as soon as tipped to helm Petroliam Nasional Bhd or Petronas, assumed the highest job at Sapura Power some 15 months in the past.

At the moment, Sapura Power was already dealing with a myriad of points, particularly its mounting debt.

However the firm was in a good worse place previous to Anuar’s entry, when complete debt had hit a whopping RM16bil. In 2019, Sapura Power, then nonetheless below the helm of Tan Sri Shahril Shamsuddin, managed to decrease that debt to the RM10bil stage, after getting Permodalan Nasional Bhd (PNB) to take up the majority of a RM4bil share sale in 2019.

That train is now a serious subject of dialogue – why did PNB pump in a lot right into a single firm?

A lot of PNB’s fairness worth has dissipated since then, as Sapura Power was not in a position to make the most of that recent new capital to repair its issues.

Quick ahead to in the present day and Anuar explains that the corporate is fighting “legacy contracts”, that are basically offers entered into following the 2014 oil crash however which have now turned out to be a drag on the corporate. It now faces the daunting process of getting to restructure its debt and get the 9 banks it owns monies to, to return to an settlement. On high of that, Sapura Power must have entry to recent capital as a way to keep it up its enterprise.

Talking to StarBizWeek completely, Anuar maintains a peaceful demeanor however would not deny the seriousness of the state of affairs Sapura Power is in.

“Sapura Power can now not maintain its operations below its present debt load, which calls for nearly half a billion ringgit in curiosity funds yearly. The quicker we will restructure our debt, the higher.”

Sapura Power has laid out an in depth debt-restructuring plan, which is now being mentioned with its collectors. What stands out within the plan is that the 9 banks which might be owed a complete of RM10.3bil should take a large 75% haircut.

Surprisingly, Anuar says that Sapura Power has obtained “majority help” from its 9 lenders to begin negotiations.

To make certain, if these banks take such a haircut, it will impression their books. It isn’t recognized that are the banks and the way a lot every is owned or how a lot of provisioning they’ve already performed.

One banking analyst says that the debt of Sapura Power is unlikely to have a major impression on the banking sector, as it’s not a single financial institution publicity and since the banks might have already offered for this through the years.

“The target is to get again to sustainability, scale back the debt burden, guarantee we will pay previous dues to our distributors, generate sufficient margins and lift working capital to fund future tasks.“The objective is to get back to sustainability, reduce the debt burden, ensure we can pay past dues to our vendors, generate enough margins and raise working capital to fund future projects.

So what went improper within the first place and what precisely are these “legacy contracts” that the corporate has to take care of?

Anuar says Sapura Power inherited this drawback from the earlier administration that took the choice to aggressively bid for tasks after the oil crash in 2014.

“The downcycle of the O&G sector, which began with the oil worth crash in 2014, lasted for nearly seven years. Throughout that point, many service suppliers like us went into aggressive bidding as we chased the shrinking job pie. Oil majors had minimize their capital expenditure.

“With the extended under-investment by the oil majors coupled with the aggressive stress amongst these of us bidding for tasks, the outcome was that the shoppers handed a lot of the danger to us. This is the reason all of us in O&G providers are in bother,” he says.

Provides Anuar, “We have now many tasks which might be returning a destructive worth. All of our losses are stemming from these legacy contracts.”

Anuar factors out that the Covid-19 pandemic exacerbated the state of affairs.

“When the Covid-19 pandemic hit, some O&G providers corporations began restructuring, however we thought we may proceed, at the least this was the understanding.

“I joined in 2020 as chief working officer after which took over the CEO’s position in March 2021. At first, we didn’t perceive the extent of the challenges. However after taking on the helm, we realized that the corporate has plenty of these ‘legacy contracts’ with difficult margins.

“The value of executing these contracts was spiraling up as a consequence of issues like rising metal costs. It affected many different gamers too,” Anuar says.

Anuar took over from Shahril, who had headed the corporate since July 2004 when it was nonetheless often known as Crest Petroleum Bhd, a unit of Renong Bhd.

Shahril, who has a 13% stake in Sapura Power, is dealing with scrutiny over his remuneration when he was with the corporate that has totaled lots of of tens of millions of ringgit.

Recall that in 2018 some shareholders such because the Staff Provident Fund (EPF) had voiced their unhappiness over this. For the monetary 12 months ended Jan 31, 2018 (FY18), Sapura Power posted a web lack of RM2.5bil whereas Shahril’s remuneration had totaled a whopping RM71.92mil.

Asset investments within the offing

Throughout its heyday, Sapura Power had a market capitalization of near RM30bil, turning into one of many world’s largest O&G service suppliers.

At its present state, Sapura Power has clearly misplaced the curiosity of the funding group. In accordance with a ballot by Bloomberg, 11 out of the 13 analysts masking the inventory charge it as a “promote” even at this low worth, a far cry from when the corporate was a screaming “purchase”.

Now it’s buying and selling at 3.5 sen a share, giving it a market capitalization of RM560mil, a shadow of its excellent debt.

It has 9 lenders ready to receives a commission that RM10.3bil and owes one other RM1.5bil to three,000 odd distributors.

“The target is to get again to sustainability, scale back the debt burden, guarantee we will pay previous dues to our distributors, generate sufficient margins and lift working capital to fund future tasks.

“Divestments will assist us do this,” he says, including that the corporate is unlikely to faucet extra fairness funding to unravel its issues.

So what’s Sapura Power going to promote?

Anuar stays tight-lipped on the property it has earmarked on the market. However he provides an excellent trace – the group needs to give attention to its providers, which implies lesser give attention to exploration and manufacturing (E&P). Which means property within the latter class are prone to be up on the market.

Sapura Power’s E&P property embrace a remaining 50% stake in SapuraOMV, an organization that operates oil fields in shallow Malaysian waters.

In 2018, Sapura Power bought 50% in its upstream oil area property to the OMV group, an Austrian-based outfit, to create SapuraOMV. The stake sale introduced it US$890mil (RM3.7bil), with a lot of the proceeds getting used to retire a few of Sapura Power’s debt.

At the moment, Brent crude oil worth was buying and selling at US$70 (RM295) per barrel.

At in the present day’s oil worth, Sapura Power may fetch a excessive worth for its remaining stake in SapuraOMV .

Sapura Power has different sizeable property, together with its fabrication yard in Lumut, six semi-tender drilling rigs, six tender help rigs and a few vessels.

Except for retiring debt, Anuar says he hopes to make use of round RM1.5bil to RM1.8bil from asset disposals for working capital functions.

Legacy contracts stay a drag

Going ahead, Sapura Power nonetheless has to take care of the truth that round 60% of its order ebook is made up of “legacy contracts”.

Apparently, Anuar has a goal to decrease the corporate’s “publicity” to such contracts from 27% from the present 60% by the tip of 2023.

That is to be achieved by a mixture of renegotiating a few of the outdated contracts and successful new ones.

“We have to renegotiate 5 key contracts in order that we will ship these tasks and acquire from the interim excessive oil costs. The thought can be for us to get right into a place the place we will ship the contract and never get injured within the course of,” Anuar says.

If there may be one comfort, it’s that Sapura Power isn’t alone.

Nearly all of the listed O&G service suppliers in Malaysia had gone into overdrive throughout the days of excessive oil costs from 2011 to 2014. They over-geared after which suffered when the 2014 crash occurred.

These included the likes of Barakah Offshore Petroleum BhdBumi Armada BhdPerisai Petroleum Teknologi BhdVelesto Power BhdIcon Offshore Bhd and Alam Maritim Assets Bhd, Lots of them needed to embark on restructuring with the assistance of the Credit score Debt Restructuring Committee (CDRC).

Some didn’t survive. Perisai Petroleum, a darling inventory of Bursa Malaysia previous to the 2014 O&G crash, needed to be liquidated after its regularization plan didn’t pan out.

For Sapura Power, this isn’t the primary time it’s needing to restructure its debt. In truth, what appears to be clear is that Sapura Power is an organization that’s not solely in want of a serious debt restructuring, but additionally a whole overhaul. Solely then can it have an opportunity of crusing again to well being as a substitute of repeating its previous errors.


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