PETALING JAYA: A merger between debt-ladened Sapura Energy Bhd and Malaysia Marine and Heavy Engineering Holdings Bhd (MHB), an indirect unit of Petronas, could well be on the cards if preliminary discussions on the proposal bear fruit.
Sources said the majority shareholders of Sapura Energy and MHB, namely Permodalan Nasional Bhd (PNB) and Petronas respectively, are “mulling” merging the two oil and gas (O&G) services providers but stressed the discussions are still at “an early stage”, according to a report in the latest issue of business weekly, The Edge.
Included in the proposed restructuring plan for the Practice Note 17 (PN17) company is the emergence of a potential white knight, among several other proposals.
A source said the major shareholders of both companies are still in the process of appointing lawyers for the potential merger, so it is hard to gauge if the proposed merger will even be successful.
“There are also parties that disagree with the corporate exercise (the merger), and these parties are in a position of power as well. So, it could go either way,” the source added.
Another source said that talks of a merger between Sapura Energy and MHB go as far back as 2015, as both companies have large fabrication yards, but nothing had materialised.
PNB is the single largest shareholder in Sapura Energy with a 40% stake, while MHB is a 65.5% subsidiary of MISC Bhd, which is in turn 51%-owned by Petronas.
What’s changed for Sapura Energy?
As stakeholders revisit the idea of a merger, a quick look under the hood shows that Sapura Energy has made strides in recovering from its beleaguered financials.
On Feb 15, 2023, it received a formal letter from a white knight riding on the back of RM1.8 billion in capital injections.
Following this, the company filed a new proposal to restructure its RM10.3 billion debt owed to nine lenders grouped under financiers of its multi-currency facilities (MCF). The group owes another RM5.12 billion to its vendors.
The high court also granted Sapura Energy and its 22 subsidiaries a three-month extension from March 11 to stall legal action by a large number of creditors, essentially keeping the wolves at bay.
This was to allow the group to engage with creditors in their debt restructuring efforts without being distracted by threat of legal proceedings.
It is also considering the sale of some of its assets, including its remaining 50% stake in SapuraOMV for RM2.25 billion, which will be used to pay off some of its debts.
Sapura Energy has said it would be able to settle about RM4.75 billion of its borrowings within seven years through asset disposals and cash proceeds generated from existing and new contracts.
O&G player that’s ‘too big to fail’
Similar to Sapura, MHB operates in the oil and gas sector. The company runs Southeast Asia’s largest O&G fabrication yard, with services that include engineering, construction, and conversion works.
Interestingly, Sapura Energy’s biggest lender is Maybank, in which PNB also has a 44.29% stake.
Other companies involved in the debt restructuring agreement include CIMB Bank, RHB Bank, AmBank Islamic Bhd, Export-Import Bank of Malaysia (Exim), United Overseas Bank Ltd (UOB), ING Bank, Standard Chartered Bank and Sumitomo Mitsui Banking Corp.
Sapura Energy is sometimes seen as an O&G company which is considered too big to fail. As such, it appears to be in everyone’s best interest to ensure it doesn’t go belly up. The question is – how will a potential merger or restructuring play out?
Investors have yet to react to the news. Sapura Energy’s share price was unchanged at 4 sen yesterday, valuing the group at RM639.16 million.
Meanwhile, MHB’s share price closed 1 sen or 1.67% lower at 59 sen, giving it a market capitalisation of RM944 million. - FMT
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