Govt’s RM1.1bil lifeline not a ‘blank cheque’ for Sapura Energy

 

Sapura Energy has secured creditors’ approval for a debt restructuring plan to address RM10.8 billion owed to nine lenders, and RM1.5 billion in trade creditor payments.

PETALING JAYA: 

The government’s RM1.1 billion cash injection into Sapura Energy Bhd comes with strict conditions that ensures there is no blank cheque for the debt-laden oil and gas (O&G) services provider, an analyst said.

Imran Yusof, head of research at MIDF Amanah Investment Bank, said the rescue package should not be construed as a bailout per se.

Imran Yusof.

“This is because the capital injection, in which the government will get a claim to the company, is to pay off some portion of the debt and not all of it,” he told FMT.

“And there are strict conditions attached with it – the most important being that it can only be used to settle monies owed to its vendors,” he said, adding the government is also not buying out – or bailing out – the company’s major shareholders.

He agreed the strict conditions imposed by the government imply there will be “no blank cheque” for Sapura Energy in terms of how the funds can be utilised.

In a bourse filing on Tuesday, Sapura Energy said the Minister of Finance (Inc), via its special purpose vehicle Malaysia Development Holding Sdn Bhd (MDH), will be subscribing to its redeemable convertible loan stocks worth RM1.1 billion, subject to certain conditions.

This essentially means the government is not giving a grant but a loan to Sapura Energy, which can be converted into company shares later. So, if its fortunes improve, MDH can convert the debt into shares, potentially profiting from any increase in Sapura Energy’s share price.

If all goes well, the government could eventually sell those shares at a profit or redeem the loan with interest.

Last month, the Practice Note 17 (PN17) company secured creditors’ approval for its proposed debt restructuring scheme involving Sapura Energy and its 22 subsidiaries to address RM10.8 billion owed to nine lenders, and RM1.5 billion in outstanding trade creditor payments. The debt restructuring plan received the High Court’s approval last Thursday.

A strategic investment

The RM1.1 billion injection has nevertheless raised eyebrows with some claiming it is a bailout. However, government spokesman Fahmi Fadzil has rubbished claims that this was a bailout.

The communications minister said the money the government poured into the nation’s largest integrated oil and gas services company was a “strategic investment” that comes with specific conditions.

“It’s not a bailout like the ones that occurred during Dr Mahathir Mohamad’s time,” he said, referring to Mahathir’s first stint as prime minister, from 1981 to 2003.

It was alleged that Mahathir’s administration had engaged in several bailout efforts, particularly during and after the 1997 Asian financial crisis.

On the current government’s stance on bailouts, Fahmi said based on the principles of the Madani government, there are “no free lunches”.

Malaysia’s current approach with Sapura Energy mirrors what other countries have done to rescue floundering but economically strategic companies.

However, it also reflects lessons learned from past bailouts, emphasising transparency and accountability to protect the public interest.

The RM1.1 billion comes with the expectation that Sapura Energy improves its governance and follows through with a rigorous turnaround plan. The government has given a clear message – reform and show results moving forward.

The company has agreed to undertake a thorough internal overhaul and is conducting a comprehensive due diligence process as part of its regularisation plan, in line with the Malaysian Code of Corporate Governance 2021.

Investment in Malaysia’s energy security

Imran said the government’s RM1.1 billion lifeline could be seen as a strategic investment in Malaysia’s own energy security and future rather than an investment in Sapura Energy per se.

“The lifeline is to pay local vendors. This is to ensure that Malaysia’s O&G supply chain or ecosystem is unaffected and can remain intact.

“The oil and gas sector is an important sector for the economy. Therefore, it is essential that the sector continues to be nurtured and developed,” he added.

Sapura Energy supports over 2,000 Malaysian vendors of which roughly 1,800 are small and medium enterprises (SMEs). Over the last five years, the group has awarded RM7.3 billion worth of contracts to these Malaysian vendors.

The economic multiplier of this spending is significant as it flows to subcontractors, fabricators, shipyards, equipment suppliers, and other service providers all over the country.

The group also has a significant global presence. It operates in about 20 countries with a workforce of roughly 13,000 people worldwide, the majority of whom are Malaysians.

If it were to collapse, the impact on this vendor ecosystem would be severe. That is why some quarters argue that the company is “too big to fail”.

The Malaysian Oil, Gas & Energy Services Council has warned that Sapura Energy’s failure would threaten the livelihoods of thousands of skilled workers up and down the supply chain.

Supporters of the government’s move to rescue Sapura Energy say it is not just about one company but about shielding an entire network of Malaysian enterprises and jobs from collapse.

On whether the government’s support means Sapura Energy can finally resolve its crippling debt problem, Imran said it would depend on the market and economic conditions.

“It is hoped this will provide Sapura Energy with a stronger footing to face the challenges and take advantage of any opportunities,” he added. - FMT