As part of what looks like a broader strategy to reduce debt and focus on areas of the business that will give the best returns for shareholders, Sapura Energy signed a strategic partnership with OMV Aktiengesellschaft (OMV) last Friday. The oil & gas services and solutions provider is now eyeing a turnaround in the financial year ending Jan 31, 2020 (FY2020).
At the same time the company will rollout a RM4 billion cash call, both exercises would pare Sapura Energy’s debt by some RM7 billion, reducing its interest costs by about RM320 million annually, allowing it to focus on its growth prospects.
The near term prospects looks positive, in the coming 3 years the company’s the order book stands at RM16 billion CEO, Tan Sri Shahril Shamsuddin stated “Our order book will increase significantly in the coming months,” he says, amid expectations of new contracts from the Middle East, India and South and Central America. It is the execution of these works from engineering and construction that will help the company turn around next year,”
The deal entails OMV subscribing to 50% of the enlarged issued share capital of Sapura Upstream — to be renamed Sapura OMV Upstream — for US$540 million, with the remaining 50% held by Sapura Energy. OMV also agrees to repay US$350 million worth of shareholders’ loans owed by Sapura Upstream to Sapura Energy, plus an additional consideration of US$55 million as well as contingency funds of up to US$30 million in relation to Sapura Energy’s Block 30 exploration asset in Mexico.
Tan Sri Shahril Shamsuddin, one of the region’s leading entrepreneurs has widely been seen as making the right move to reduce debts at a time when others are struggling to do so. Sapura Energy has long- and short-term borrowings of RM11.12 billion and RM5.76 billion respectively as at end-July. On top of Sapura Energy’s recent RM4 billion rights issue, the company will be able to pare its debts by RM7 billion to RM9.88 billion.
Shares of Sapura Energy rose 1.5 sen or 4.17% to close at 38 sen on Friday, giving the company a market capitalisation of RM2.25 billion. The current share price level, says Shahril, is “very good” for the rights issue. “I think the market is looking at how we are going to bring down our debt … and now [at post-exercise levels] it is a very, very strong balance sheet.
“And I believe you will see a better valuation closer to its intrinsic value [considering the] cash-generation capabilities in the coming years,” he stated.
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