The oil and gas (O&G) services provider had been badly hit by the tumble in crude prices. A plan to reduce its debts and to raise working capital so that it could continue to secure new contracts was then put on the table.
However, the plan was never fully implemented. A major stakeholder would not or could not come up with the full sum it was expected to, while a new line of credit came with so many conditions attached that it was near impossible to utilise it.
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The plan for a restructuring exercise was first mooted in 2017. By then, SEB had begun to report losses.
At a meeting with major shareholder Permodalan Nasional Bhd (PNB) in early 2018, SEB proposed that key stakeholders inject RM6 billion into the company. That would have helped it pare down its debts substantially and then leave some for working capital.
In response, PNB proposed a ceiling of RM4 billion in new injection, spinning off the drilling business and listing the exploration and production business.
At the same time, a change in the political climate in the country saw Pakatan Harapan unseat Barisan Nasional to take the reins in Putrajaya on May 9, 2018. This was followed less than two months later by a change in leadership at PNB.
Former Bank Negara Malaysia governor Zeti Akhtar Aziz replaced Abdul Wahid Omar as chairman of PNB on July 1 that year.
Nonetheless, the revised restructuring plan was given the nod.
But in the end, PNB injected only RM2.7 billion (RM1.7 billion through a rights issue and RM1 billion in redeemable convertible preferential shares). Sapura Group and SEB president and group chief executive officer Shahril Shamsuddin added another RM532 million and the SEB leadership team topped that up with an additional RM16 million.
Almost the entire sum was used to repay outstanding loans, in which PNB-owned Maybank was the largest beneficiary, leaving almost nothing for working capital.
Even so, SEB ended up paying the banks an exorbitant sum of RM75 million as underwriting fee for the rights issue.
SEB then turned to the banks for a RM2 billion loan as working capital but eventually received only RM1.2 billion. Even so, there were strict conditions attached to its drawdown. The facility could not be utilised in a timely manner and was suspended in October 2021.
The Covid-19 pandemic only made things worse for SEB. It reported an RM8.9 billion loss in the financial year ended Jan 31, 2022, leading to calls for another restructuring plan.
SEB’s troubles were exacerbated by several bad apples, among them the Yunlin wind farm project in Taiwan and the Oil and Natural Gas Corporation (ONGC) deep-water development project in India.
Both projects were extensively delayed as a result of unresolved technical and operational issues that, insiders said, were beyond SEB’s control.
According to an industry source, these developments significantly altered the basis of the contracts. The situation took a turn for the worse when the Covid-19 pandemic hit.
An industry source now attributes the setback to “unreliable information” provided by Yunlin and ONGC, implying that there were grounds for SEB to institute legal action to recover the costs. Attempts to reach the clients for comments proved unsuccessful.
For the Yunlin contract, SEB had issued notice of termination early this year.
With the company deep in trouble, former prime minister Najib Razak took on the leading role in promoting the proposal for a bailout.
On the other hand, opponents such as former Pandan MP Rafizi Ramli are adamant that it made more sense to spend that money on those who have been badly affected by the fallout of the Covid-19 pandemic.
More than that, opponents have also drawn on the poor record Malaysia has in bailouts for sick GLCs. The list of failed rescue plans includes the likes of Malaysia Airlines, Perwaja Steel, the Renong Group and Felda, to name a few.
In these cases, the focus was on cost reduction and the sale of assets rather than growing the business holistically through a proper restructuring plan.
Yeoh Guan Jin is Business Editor at FMT.