In its latest financial results announcement yesterday, the group narrowed its full-year net loss to RM3.2 billion for FY2023, considerably lower than the RM9.05 billion loss recorded for FY2022.
This included RM2.6 billion impairment charges of which nearly RM1.5 billion is related to goodwill on consolidation. The impairments were associated with higher weighted average cost of capital arising predominantly from a global interest rate hike, the group said in a filing with Bursa Malaysia yesterday.
Revenue rose 12% to RM4.55 billion for FY2023 from RM4.1 billion a year earlier, contributed by higher revenue from the drilling segment, attributable to higher rig utilisation days, and the operations and maintenance segment.
Minus the impairments, Sapura Energy posted an operating profit of RM705 million, a quadruple increase compared to the operating loss of RM2.2 billion recorded in FY2022.
All business segments (excluding corporate) posted positive earnings before interest, taxes, depreciation and amortisation (ebitda) in FY2023.
Budding optimism tempered by scepticism
At 3.55pm, the oil and gas company’s shares rose 14.29% or 0.5 sen to 4 sen but investors’ positive sentiment was not shared by some research houses.
While there is some cause for optimism, no one is under any illusion that a turnaround is imminent. Instead, the road to recovery will probably be long and painful.
RHB Investment Bank Bhd has maintained a “sell” call on Sapura Energy with a target price (TP) of 2 sen.
It said whilst yesterday’s financial results “exceeded expectations”, worries over the profitability of Sapura’s engineering and construction (E&C) segment and order book replenishment remained due to the group’s limited working capital.
Despite the company receiving a RM1.8 billion letter of support from a white knight, RHB said a debt and equity restructuring – which will be highly dilutive – is inevitable. Nevertheless, this will enable “Sapura to get out of the woods”, it noted.
Meanwhile, Public Investment Bank Bhd downgraded its call on Sapura Energy to “underperform” from “neutral”, with a TP of 2 sen.
In a report today, PublicInvest echoed RHB’s concerns over the E&C segment, citing liquidity and cost pressures in its legacy contracts.
It also noted concerns over the group’s PN17 regularisation plan which has taken a setback with RM3 billion in negative equity despite obtaining a letter of support from the white knight.
Progress in debt restructuring plan
In the last 12 months, Sapura Energy has made strides to progress its debt restructuring plan.
In a March 8 filing, the company announced it and its 22 subsidiaries were given three-month orders from March 11 restraining creditors from commencing or restarting legal proceedings.
This was to allow the group to engage with creditors in their debt restructuring efforts without being distracted by threat of legal proceedings.
On Sept 1 last year, the Corporate Debt Restructuring Committee (CRDC) approved the group’s application for the committee’s assistance to mediate in its RM10.3 billion debt restructuring negotiations with the multi-currency financing (MCF) financiers.
The CDRC has since extended the standstill period for Sapura Energy up to Sept 9, 2023, giving it more breathing space for its restructuring efforts.
The group has filed a new proposal to restructure its RM10.3 billion debt owed to nine lenders grouped under financiers of its MCF facilities. The group owes another RM5.12 billion to its vendors.
In a statement yesterday, Sapura Energy confirmed it had informed the High Court of a letter of support from a white knight, whose investment will help it implement its “Reset plan”.
It is also looking to divest subsidiary SapuraOMV as part of the proposed restructuring scheme (PRS). It has completed an independent valuation for selected assets to be divested worth RM2.25 billion, as settlement to its creditors.
The group appointed MIDF Amanah Investment Bank this week as principal advisers to help formulate its regularisation plan to address its PN17 status.
The major hurdles confronting the group include the lack of working capital and the unavailability of bank guarantees, following the suspension of its working capital facilities in October 2021.
The curtailment resulted in missed tender opportunities for the group, with an estimated value of US$2.5 billion (RM11 billion).
“It’s crucial we revive Sapura Energy’s access to credit lines to remain competitive in the current and emerging markets. Reducing our unsustainable debt will go a long way in improving that financial ability,” said Sapura Energy group CEO Anuar Taib in yesterday’s statement.
Despite these challenges, Sapura Energy retained its competitiveness as a global player. More than 70% of its FY2023 revenue came from international contracts, as it completed 45 projects for various clients during the year.
The group continued to win new work, which amounted to about RM3.7 billion in value, bringing its current order book to RM5.6 billion. The non-consolidated gross order book of its joint-venture entities stands at RM5.2 billion.
All eleven of its rigs are currently under contract in Malaysia, Thailand, Brunei and West Africa.
Rebuilding trust
Building on the positive momentum achieved in FY2023, Sapura Energy is determined to extend the turnaround in its operations to FY2024.
Anuar highlighted the vital role of its human resources, adding its various teams delivered “significant operational improvements” in the face of considerable challenges last year.
“We must ensure our turnaround benefits the entire value chain; and regain the trust of our stakeholders – particularly clients, vendors, employees and shareholders,” he added.
Anuar perhaps hit the nail on the head when he said regaining the “trust of our stakeholders” was pivotal in successfully coming out of its financial predicament.