KWAP answers Sapura Energy’s call for cash

This article first appeared in The Edge Financial Daily, on September 7, 2018.
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KUALA LUMPUR: Kumpulan Wang Persaraan (Diperbadankan) (KWAP), the third largest shareholder of Sapura Energy Bhd, was caught off guard when the group announced its massive RM4 billion cash call. Still, the pension fund, which holds a 7.7% stake, is committed to the rights issue of new shares and irredeemable preference shares.

“Yes, we were surprised by the cash call as we did not expect the company would seek external funding so soon.

“KWAP intends to support the proposal. We see potential growth of Sapura Energy’s business in light of the expectations of a steady oil price. Nevertheless, as part of our internal investment process, we will continue to engage with management and monitor the performance of the company,” said KWAP’s spokesman in a written email to The Edge Financial Daily.

KWAP is the second substantial shareholder which has given full support to the cash call. The other is the group’s second largest shareholder Permodalan Nasional Bhd (PNB), which is expected to become the single largest shareholder after the cash call as PNB intends to take up some of the unsubscribed units.

Meanwhile, Sapura Energy founder and chief executive officer Tan Sri Shahril Shamsuddin does not intend to subscribe for the full entitlement of the rights issues.

Shahril and his brother Datuk Shahriman Shamsuddin hold 16.81% through Sapura Holdings Sdn Bhd, making it the largest shareholder currently. The family is committed to RM300 million for the cash call compared with its entitlement of nearly RM500 million. Sapura Holdings’ shareholding could be diluted to about 12.6% post-cash call.

The recapitalisation exercise would see the group raise up to RM3 billion from a five-to-three renounceable rights issue of ordinary shares at 30 sen apiece, which comes with free warrants on a one-for-10 basis. There will also be a proposed two-for-five renounceable rights issue of new Islamic redeemable convertible preference shares at 41 sen each.

Sapura Energy lost ground after the news about the proposed rights issues. The oil and gas stock has fallen by 43.7% to all time low of 33.5 sen from 59.5 sen on Aug 23, a day before the announcement.

KWAP pointed out that the decline in the share price could be that investors did not see it coming that soon.

“We believe the decline in the share price reflects the surprise of the early cash call. As mentioned, the market did not expect Sapura Energy to seek external funding at least in the next 12 months,” the spokesman commented.

KWAP was seen to be accumulating Sapura Energy shares in the open market prior to the announcement of the proposal.

In August alone, prior to the announcement, the retirement fund mopped up about 30 million shares in Sapura Energy at an average cost of about 58.5 sen per share. On Aug 24 when the announcement of the proposal was made, KWAP instantly sold about 1.21 million shares at a price of 41.5 sen a share.

Still, it has indeed raised its stake from about 365.4 million shares at the end of the third quarter last year to its current holding of 459.1 million shares or about 7.7% stake in the company.

Despite the steep decline in its share price, most of the local and foreign institutions have maintained their holdings in the company after the proposed cash call, based on Bloomberg data. Among some of the institutional investors are Vanguard Group Inc (2.6%), Lembaga Tabung Haji (1.98%) and Affin Hwang Asset Management (1.86%).

Ten analysts out of 19 have maintained their “buy” call on Sapura Energy. Five have recommended “hold” while another four have a “sell” call on the company. The average 12-month target price is at 55 sen, indicating a potential return of about 61.8%. But investors who had held onto the company a year ago would have seen a total loss of about 77.2%.