MECHANICS OF THE RESCUE
According to bankers involved in the rescue plan, Sapura Energy will issue debt instruments, known as redeemable convertible loan notes, that would carry an annual interest rate of 2 per cent, to the Ministry of Finance in return for RM1.1 billion that would then be used to pay contractors, sub-contractors and other service suppliers.
The settlement of the outstanding debt will allow the company’s main lenders – the state-controlled financial institutions Maybank, RHB and CIMB – to carry out a restructuring of Sapura Energy’s outstanding debt.
“The deal is not good for the banks because they will need to take haircut on outstanding debt that will need to be amortised in their book,” noted a director of one of the banks involved in the financial exercise, who declined to be named because he is not allowed to speak to the media on the grounds of banking secrecy.
A haircut refers to banks getting less than what they are owed.
“But without the (government) injection, there was no way to carry out a restructuring. With this, Sapura Energy does have a fighting chance to become viable again,” said the director, who declined to provide details on the size of the write-off the financial institutions would have to make under the debt restructuring plan.
But two other bankers involved in the proposed restructuring noted that Sapura Energy’s debt burden will be cut from RM10 billion to RM5.2 billion after the restructuring exercise, which could take up to six months and must receive regulatory and shareholder approvals.
FORMER STOCKMARKET DARLING
There was a time when Sapura Energy was the darling of the stock market.
The result of a corporate merger in 2012 between two entities controlled by businessman Shahril Shamsuddin and Mahathir’s second son, Mokhzani Mahathir, the company expanded rapidly and began spreading its footprint internationally, securing clients such as Petrobras of Brazil.
At its peak, Sapura Energy ranked as the world’s second-largest integrated oil and gas services provider after Saipem SpA of Italy.
Then came the collapse in oil prices in 2014, which hit the company that had built its rapid expansion on debt from local financial institutions. Financial losses began to pile up and, in 2017, Mokhzani sold his interest in Sapura Energy.
Shahril stayed on to lead the business but a financial turnaround eluded the company because of the high cost involved in servicing the group’s large debt burden.
As Sapura Energy’s financial woes deepened, PNB decided to increase its stake to 40 per cent in 2018, from roughly 7 per cent, when it subscribed to an issue of new shares in the company to raise additional funding.
The PNB investment amounted to just over RM2.67 billion, but that has not been enough to stem the losses at Sapura Energy, setting the stage for last week’s financial rescue.
