KUALA LUMPUR: Upstream oil and gas (O&G) player SapuraKencana Petroleum Bhd is taking steps to reinstate its syariah-compliant status after being omitted from last Thursday’s list of syariah-compliant stocks by the Securities Commission Malaysia’s (SC) Shariah Advisory Council.

Sources close to the company told The Edge Financial Daily that the company will be back in the list in the next review by the SC next May.

“Steps are being taken by SapuraKencana to restore the company as one that meets the SC’s syariah-compliance requirements on debt by the end of its financial year Jan 31, 2015. As such, it is expected to be included as a syariah-compliant stock in the SC’s next review in May 2015,” said the source.

SapuraKencana was excluded in the latest list of syariah-compliant stocks as it did not meet one of three criteria, which requires that conventional debt does not exceed two thirds of a company’s total assets. “SapuraKencana’s borrowings have been completely conventional debt as Malaysian banks do not have large enough US dollar Islamic products or the limit to support SapuraKencana,” said the source. “This fact has been explained to the SC by a major lender,” he added.

The group has been working with 14 banks over the past six months and has got approvals to convert their required portions into syariah-compliant debt to meet SC’s requirements. The debt conversion is expected to be completed before the end of its financial year ending Jan 31, 2015.

Ahead of the list’s announcement, SapuraKencana’s share price was already trending down as funds have been trimming their stakes in the company. After the announcement, it fell 13 sen or 4.33% to RM3.09. Last Friday, the stock tumbled another 29 sen or 9.39% to close at RM2.80. The syariah exclusion, coupled with a dampened outlook for the O&G sector as oil prices dropped after the Organization of Petroleum Exporting Countries meeting, had significantly impacted the stock.

Year-to-date, SapuraKencana’s share price has declined 42.73%. Comparatively, the KLCI has only shed 2.47% in the same period. In the SC’s latest syariah-compliant stocks list, 30 stocks were removed while 40 counters were added, resulting in a total of 673 stocks. Other notable companies that have been removed from the list include Chemical Co of Malaysia Bhd, Shell Refining Co (Federation of Malaya) Bhd, Perdana Petroleum Bhd and Puncak Niaga Holdings Bhd.

This article first appeared in The Edge Financial Daily, on December 1, 2014.