Get ready to a massive shock to our KLSE and economy. 9 Banks asked to write off RM 7.6 Billion which is more than the combined profits of all banks in Malaysia. Bank stocks are going to take a hit which will drag down the rest of the market. This amount is 3 times higher than Genting Loses at RM 2.5 Billions.
Sapura Energy, which is saddled with RM10.3 billion in loans from nine banks, has begun discussing a debt-restructuring plan and is planning to sell some of its assets to return to sustainability.
In addition to the nine lenders, the company also owes RM1.5 billion to about 3,000 vendors, The Star reported.
Sapura Energy’s group chief executive officer Anuar Mohd Taib said it has received “majority support” from its nine lenders to start negotiations.
“Sapura Energy can no longer sustain its operations under its current debt load, which demands almost half a billion ringgit in interest payments annually. The faster we can restructure our debt, the better,” he was quoted as saying.
The report said the nine banks may have to take a massive 75% haircut under the proposed plan.
In the business context, a haircut refers to the lower-than-market value placed on an asset being used as collateral for a loan.
With Sapura Energy having lost the interest of the investment community, Anuar said that the company is planning an asset divestment exercise to return to sustainability.
“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.
“Divestments will help us do that,” Anuar told The Star, adding that the company is unlikely to tap more equity funding to solve its problems.
However, he was tight-lipped on the assets the company had earmarked for sale but gave some hints. He said the group wants to focus on its services, which means lesser focus on exploration and production (E&P).
“This means that assets in the latter category are likely to be up for sale,” the report said.
Sapura Energy’s E&P assets include a remaining 50% stake in SapuraOMV, a company that operates oil fields in shallow Malaysian waters.
In 2018, Sapura Energy sold 50% of its upstream oil field assets to the OMV group, an Austrian-based outfit, to create SapuraOMV.
“The stake sale brought it US$890 million (RM3.7 billion), with most of the proceeds being used to retire some of Sapura Energy’s debt,” the weekly said.
It added that Sapura Energy has other sizeable assets, including its fabrication yard in Lumut, six semi-tender drilling rigs, six tender assist rigs and some vessels.
Aside from retiring debt, Anuar said he hoped to use around RM1.5 billion to RM1.8 billion from asset disposals for working capital purposes.
Describing the current problem as one that was caused by “legacy contracts”, he said Sapura Energy inherited this from the previous management that took the decision to aggressively bid for projects after the oil crash in 2014.
“The downcycle of the O&G sector, which started with the oil price crash in 2014, lasted for almost seven years. During that time, many service providers like us went into aggressive bidding as we chased the shrinking job pie. Oil majors had cut their capital expenditure.
“With the prolonged under-investment by the oil majors coupled with the competitive tension among those of us bidding for projects, the result was that the clients passed most of the risk to us. This is why all of us in O&G services are in trouble,” Anuar was quoted as saying by The Star.
He added that Sapura Energy had many projects that were returning a negative value, adding that all of its losses stemmed from these legacy contracts.
Anuar pointed out that the Covid-19 pandemic exacerbated the situation.
“When the Covid-19 pandemic hit, some O&G services firms started restructuring, but we thought we could continue, at least this was the understanding.
“I joined in 2020 as chief operating officer and then took over the CEO’s role in March 2021. At first, we did not understand the extent of the challenges. But after taking over the helm, we realised that the company has a lot of these ‘legacy contracts’ with challenging margins,” he said.