Frankly Speaking: Time of reckoning for Sapura

This article first appeared in The Edge Malaysia Weekly, on May 3, 2021 - May 09, 2021.
Frankly Speaking: Time of reckoning for Sapura
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Malaysia’s biggest privately held oil and gas (O&G) company, Sapura Energy Bhd, has seen a change in management, a restructured balance sheet and a more conducive operating environment.

After having posted losses and incurring a total impairment of RM9.24 billion in the last five years, the company, which boasts operations all over the world, should no longer have excuses to not perform.

The O&G industry has shown a marked improvement in fundamentals and stability. This should pave the way for Sapura to start making profits and return money back to shareholders, primarily Permodalan Nasional Bhd (PNB).

The management of Sapura are the same persons who used to be in the top management of Petroliam Nasional Bhd. Former Petronas vice-president and CEO of upstream Datuk Mohd Anuar Taib replaced Tan Sri Shahril Shamsuddin as Sapura group CEO last month. Company chairman Tan Sri Shamsul Azhar Abbas used to helm Petronas.

Sapura has never had a problem replenishing its order book, which currently stands at RM13.5 billion. It has been the front runner for most of the large-scale jobs from Petronas because of its fleet of assets and positioning as a home-grown brand.

The company has assets no other local company can compete with. For instance, its heavy lift pipe-laying vessel is capable of lifting 3,500 metric tonnes and can undertake heavy-duty work for pipe laying in deep and shallow waters.

However, project execution has been poor, resulting in most of its engineering and construction jobs running on tight margins. As such, when the industry ran into turmoil, the projects incurred cost overruns. The downturn in the industry has also forced it to write down the value of its assets.

PNB injected RM2.7 billion into Sapura through a rights issue in 2018, becoming its largest shareholder, and is the main reason banks agreed to refinance its loans amounting to RM3.1 billion from short-term to long-term liabilities. In addition, Sapura has a two-year grace period for repayment of the principal.

Research houses reckon the worst is over for Sapura. Whether that is really the case can only be seen in its results.

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