KUALA LUMPUR: Sapura Energy Bhd says it is in discussions with banks to refinance the oil and gas support services provider’s borrowings and that these lenders are supportive of the company’s refinancing plans.

In an email reply to queries from The Edge Financial Daily yesterday, a Sapura Energy representative said the company expects to complete the refinancing exercise this year.

"Yes, we are in discussion with our relationship banks on a refinancing of our borrowings. This has always been our plan, post completion of the rights issue and strategic partnership with OMV last year, where we had successfully reduced our borrowings. Banks are supportive (of) the refinancing and we expect to complete the exercise this year,” the representative said. She did not elaborate.

She said Sapura Energy will announce its results for the fourth quarter (4QFY20) and full year ended Jan 31, 2020 (FY20) in April 2020. Ahead of the results announcement, she said Sapura Energy’s asset impairment review is a normal process, before finalizing the 4QFY20 results.

"The impairment review is done annually as part of our normal process before finalizing the 4QFY20 results, the outcome of which will be made known when we announce our results by the end of April,” she said.

CGS-CIMB Securities Sdn Bhd analyst Raymond Yap wrote in a note yesterday that Sapura Energy will need bankers’ support to continue operating as a going concern and that potentially, large asset impairments are on the horizon for the company.

"Sapura Energy had RM17 billion in borrowings originally, which were reduced to RM10 billion in Jan 2019, using part of the proceeds from the rights issue of new shares and preference shares. Of this RM10 billion, RM1.6 billion are revolving credits which need not be repaid immediately. This leaves RM8.4 billion, of which RM6.4 billion is to be repaid in calendar year (CY) 23F, and the remainder of RM2 billion to be repaid in CY21F, CY22F and CY23F, but the repayment breakdown for each year has not been disclosed by the company,” Yap said.

Yap said Sapura Energy may struggle to repay its debt principal obligations from CY2021 onwards, unless its contract flows pick up momentum.

"However, this is unlikely, in our view, with many oil majors now rushing to cut capex spending. This means that Sapura Energy will need bankers’ support to continue operating as a going concern,” said Yap who took into account Sapura Energy’s estimated RM575 milllion cash balance as at Nov 30 2019, and trade receivables and payables of some RM1.9 billion and RM2.7 billion respectively.

"In our view, Sapura Energy and its auditors may be working through impairment issues, on its E&C (engineering and construction) and drilling assets, on the value of 50%-owned SapuraOMV’s oil & gas fields, and on the appropriate carrying value of Sapura Energy’s RM8 billion goodwill, potentially necessitating a delay in its earnings release. We are not waiting for this process, and have preemptively cut our SOP (sum-of-the-parts)-valuation using our own estimates and assessments,” Yap said.

CGS-CIMB has cut its target price (TP) for Sapura Energy shares to five sen from 29 sen and downgraded its call for the stock to “Reduce” from “Hold” previously.

"Operating cashflows may be insufficient to repay debt principal from FY22F onwards, requiring bank refinancing, rescheduling or additional loans.

"Our TP has been cut by 24 sen, as we have aggressively cut the value of Sapura Energy’s businesses. Downgrade from Hold to Reduce. Sapura Energy has not recovered from the 2014-16 oil price crash, can it survive the second oil price crash?” Yap said.

The top active stock on Bursa Malaysia yesterday, Sapura Energy shares closed 0.5 sen or 6.25% lower at 7.5 sen, after 201 million shares were traded, giving the company a market capitalization of RM1.2 billion.