Sapura Energy strikes a good cash deal By Shahril Shamsuddin

PRESIDENT and CEO of Sapura Energy Bhd Tan Sri Shahril Shamsuddin were visibly satisfied when The Edge met him a week ago. His excitement is reasonable.

The oil and gas service provider, in which Shahril has 16.8% interest, had recently declared that Austrian oil and gas giant OMV Aktiengesellschaft was looking to get a 50% stake in the GROUP’s upstream resources housed under Sapura Upstream Sdn Bhd (recently known as Sapura Exploration and Production Sdn Bhd).

The parties have signed to a head of the arrangement and are resolving the details.

The evaluating of the stake depends on an endeavor estimation of US$1.6 billion (RM6.64 billion), which implies Sapura Energy will before long have US$800 million fresh cash — something that the group needs to deleverage its debt-heavy asset report.

What’s more, Sapura Energy will have a strong partner to develop its upstream business.

The endeavor estimation of Sapura Upstream is a conspicuous difference to Sapura Energy’s market capitalization of RM2.6 billion.

Sapura Energy’s share price saw a solid bounce back after the declaration. During the three exchanging days a week ago, the stock increased 30% to close at 45.5 sen on Friday. A sum of 1.12 billion shares changed hands during the holiday-shortened week.

The climb in share price spells investor confidence in the deal, taking into account that the counter had been pounded down to an all-time low of 33.5 sen directly after the declaration of its massive RM4 billion cash call a month ago.

“It’s a decent deal … I can challenge any individual who says something else,” Shahril discloses to The Edge. “It gives legitimacy and is an endorsement of the organization (Sapura Energy) … equal shareholding to an organization that has a market capitalization of €15 billion.”

While Shahril is tight-lipped on the remarkable highlights of the agreement, The Edge comprehends that Sapura Energy may deal with the joint venture.

He includes that Sapura Energy will have the capacity to use OMV and vice versa and that Sapura will have a presence in OMV’s strongholds. “There are likewise a few perspectives you can’t put a price tag on, for example, knowledge, aptitude, advertise reach and training. There is a wealth of knowledge and HR that we can tap in our new partner,” he says.

In an official statement, OMV executive and CEO Rainer Seele say, “The intended partnership with Sapura Energy is a major step to develop OMV’s activities in Southeast Asia. The oil and gas request in this region is relied upon to increase strongly until 2030 and OMV is accepting the opportunity to additionally grow the business and develop the new core region.”

The stake deal will concede Sapura Energy’s intend to list its upstream resources that were slated for not long from now.

“It [the stake sale] has more esteem include than an IPO. I consider this to be framing an organization rather than only a divestment,” says Shahril, noticing that there will be vulnerabilities along with a listing process that ranges from valuation and tedious compliance to market sentiment and investor appetite.

Who is OMV?

The name probably won’t ring a bell in Malaysia however the oil and gas giant has a solid nearness in Eastern Europe with an every day creation of 348,000 barrels of oil proportional (BOE) every day, which is equally split among oil and gas, with the greater part of the production coming from Romania and Austria. OMV has a workforce of 20,721.

For its financial year finished Dec 31, 2017, OMV chalked up €1.59 billion in net profit (RM7.66 billion) from €20.22 billion (RM97.37 billion) in income. Last Thursday, its shares shut at €45.92 (RM221.37), giving it a market capitalization of €15.02 billion (RM72.33 billion).

OMV’s upstream arm investigates and produces oil and gas in Central and Eastern Europe, the North Sea, the Middle East, Africa, Russia, and Australasia.

As at end-2017, OMV had proven reserves of 1.15 billion BOE and proven and likely holds of 1.94 billion BOE. Its downstream business incorporates three refineries in Austria, Germany, and Romania, a universal multi-brand filling station retail organizes and a preparing limit of 17.8 million tons. OMV additionally has an Austrian gas pipeline system and storage facilities.

Its biggest investors are Österreichische Bundes-und Industriebeteiligungen GmbH, which speaks to the Austrian government and holds a 31.5% stake, and International Petroleum Investment Company, which has 24.9%.

Investigators’ take

The deal came as a shock to the contributing organization however up to this point, most investigators and reserve chiefs appear to be certain about it just in light of the fact that the stake deal gives significantly more affirmation on Sapura Energy’s intend to monetise resources for pare down its obligation, contrasted and a posting exercise.

“The divestment has fewer vulnerabilities contrasted and a listing exercise. Financial specialists never like vulnerabilities,” says an investigator who tracks the stock.

Sapura Energy is relied upon to book a gain of as much as RM2 billion, if not more, which will support its main concern but rather not its core benefit.
Aside from settling borrowings with the cash proceeds, Sapura Energy hopes to exchange debts related with the upstream resources for the organization mutually possessed with OMV.

As at end-April, Sapura Energy had cash of RM1.36 billion, a long-haul obligation of RM10.90 billion and transient getting of RM5.57 billion.

Sapura Energy’s finance cost for the initial three months of its financial year finished April was RM227.93 million. The organization saw a total deficit of RM136.73 million from RM1.05 billion in income.

In a report, UBS says, “In view of the deal’s enterprise value, we estimate Sapura Energy could get US$800 million or RM3.2 billion in cash. This should expel near-term financing concerns as it would permit Sapura Energy to reimburse its RM3.8 billion obligation due in 2019, without depending on money inflow from capital raising.”

UBS has a “purchase” approach Sapura Energy and a year target cost of 52 sen, which is right around a 17% premium to the end cost of 44.5 sen last Thursday.

To recap, Sapura Energy declared an RM4 billion money call including a rights issue of Islamic convertible inclination shares and new common offers improved by free separable warrants to pare down borrowings as of late.

UBS includes, “We trust the fruitful rights issuance will be key to expelling the financing overhang for Sapura Energy.”

Open Investment Bank expects Sapura Energy’s net adapting to drop to 0.7 occasions with aggregate premium cost sparing of about RM350 million. “Therefore, the gathering’s main concern for FY2020/FY2021 is required to enhance by over 100% to about RM280.2 million and RM524.1 million separately.” It has an “exchanging purchase” call and target cost of 81 sen on the stock.

Premium cost sparing will free up more money for working capital, which is basic for the gathering to execute employment and secure new contracts.

Going ahead

To an oil and gas man like Shahril, the arrangement that is relied upon to get over RM3 billion money is similar to striking oil in another well.

Sapura Energy has set up two noteworthy plans to slice its obligation — stripping a half stake in an upstream unit and a rights issue — in a limited capacity to focus a month. Should things work out, its obligation issue will before long be a relic of times gone by.

Indeed, Shahril is as of now looking past the worries about the gathering’s expansive borrowings. “My work isn’t done yet. I have an alternate arrangement of difficulties now [after the gathering has tended to the obligation problem],” Shahril says, noticing that he needs to ensure Sapura Energy wins new employment.

Sapura Energy’s structure book is picking up footing at RM16.7 billion, following a three-year low of RM14.9 billion early this year.

As indicated by CGS-CIMB, in Saudi Arabia, Sapura Energy is one of a few contractual workers offering for work at Saudi Aramco’s Marjan field. Sapura Energy is additionally offering for US$950 million of agreements at ExxonMobil’s Neptune field seaward Romania.

It is likewise the main bidder for the establishment of the early generation stage at the Milton field, seaward Mexico, for Eni, and a solid contender for stage creation and establishment work at ONGC’s KG-DWN-98/2 venture in India.

The unfaltering move in unrefined petroleum costs, which has ruptured the US$70 level, maybe a flag that the business will be out of the forested areas soon, on the off chance that it isn’t as of now.

The stage appears to be set for Shahril, a standout amongst the most generously compensated CEOs on Bursa Malaysia, to demonstrate that his system to grow the gathering by means of borrowings can bring it to more noteworthy statures.


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