This article first appeared in The Edge Financial Daily on January 29, 2019
KUALA LUMPUR: Oil and gas (O&G) services provider Sapura Energy Bhd said the undersubscription of its rights issue exercise, which was completed last week, was due to the cloudy conditions in the market at the time which affected the sentiment of investors.
Its group president and chief executive officer Tan Sri Shahril Shamsuddin (pic) said various factors, including the concerns about global trade, had caused some uncertainties over the recovery of the O&G industry.
“I think the sentiments during the rights issue were a bit muddled because there were so many conflicts. There was conflict between the US and China and globally on trade that caused a lot of local and foreign investors to be a bit shy.
“Institutions held back because they were uncertain of the industry’s recovery. Unless you are in the business, you cannot see the pickup in activity in the sector,” Shahril told reporters after the group’s extraordinary general meeting (EGM) yesterday.
Last week, Sapura Energy said it successfully raised about RM4 billion from its rights and warrants issue that closed on Jan 16, amid an 18.51% undersubscription for the first portion of the issuance, raising about RM3 billion.
The cash call also involved a rights issue of Islamic redeemable convertible preference shares (RCPS-i), which was oversubscribed by 1.18%, raising another RM1 billion.
The remaining unsubscribed rights shares will be fully taken up by the joint underwriters, namely Maybank Investment Bank Bhd, CIMB Investment Bank Bhd and RHB Investment Bank Bhd.
The three investment banks previously inked an agreement with Sapura Energy to underwrite up to 2.5 billion rights shares that could cost as much as RM750 million. Based on the 30 sen apiece issue price for the rights shares, the underwriters will have to fork out about RM555 million for the unsubscribed shares.
In the weeks leading to the close of the rights issue, the group’s share price sank numerous times below the 30 sen issue price for its rights shares, sparking concerns about the cash call and the heightening underwriting risks for the three investment banks.
Meanwhile, Shahril pointed to the emergence of Permodalan Nasional Bhd as the largest shareholder of Sapura Energy, which he said is a testament to the group’s potential for growth going forward.
Shahril said that the group still managed to secure the money which will go towards paring down its debt level.
“From the company’s point of view, we got the money in so that’s good,” he said.
The EGM was held to seek shareholders’ approval for Sapura Energy’s joint venture with OMV Aktiengesellschaft. The shareholders approved the resolution, which will see OMV purchasing a 50% stake in Sapura Upstream Sdn Bhd for total proceeds of US$975 million (RM4.01 billion).
The proceeds comprise US$540 million for the stake itself, the repayment by OMV of US$350 million worth of shareholders’ loans owed by Sapura Upstream to Sapura Energy, plus an additional consideration of US$55 million and contingency funds of up to US$30 million in relation to Sapura Energy’s Block 30 exploration asset in Mexico.
“With the proceeds from the sale of the stake and the amount raised in the rights issue, we can pare down our debt from close to RM17 billion to around RM9 billion and also bring down our debt-to-equity ratio from 1.72 to 0.62 times.
“This will give us the headroom to execute bigger projects because we’ll need more working capital. And to try to go back to the days when we were able to increase our turnover and move towards possible profitability as soon as possible,” said Shahril.
He added that the group has an order book of about RM19.3 billion currently, which will keep the group busy for the next three years, with the group tendering for another RM14.3 billion worth of jobs.