This article first appeared in The Edge Malaysia Weekly on March 13, 2023 - March 19, 2023

SAPURA Energy Bhd has found a white knight in its bid to recover from its beleaguered financial position.

In court documents sighted by The Edge, the company said it had received a “formal letter from a white knight” last month that indicated it would provide financial support to Sapura Energy, subject to certain conditions. The financial support is in the form of a RM1.8 billion capital injection.

With the emergence of the white knight, Sapura Energy has filed a new proposal to restructure its RM10.3 billion debt owed to nine lenders grouped under financiers of its multi-currency financing (MCF) facilities. It owes another RM5.12 billion to its vendors.

“On Feb 15, 2023, Sapura Energy received a formal letter from a white knight supporting Sapura Energy’s restructuring initiatives to preserve the Malaysian oil and gas (O&G) ecosystem. The financial support from the white knight will be in the form of investment into Sapura Energy, subject to the following conditions: (1) the amount and terms to be discussed and finalised by the white knight and Sapura Energy; (2) agreement to the schemes with the multi-currency financing (MCF) financiers,” one of the court filings read.

The court documents did not name the white knight.

Several sources say the white knight is likely to be an O&G company from the Middle East. “There has been talk since last November that Sapura Energy is in discussions with two O&G companies from the Middle East to come in as a white knight,” says a source.

Another source points out that the white knight is a much needed part of the remedy for a turnaround of Sapura Energy at a time when the O&G sector is on the upswing.

Sapura Energy did not respond to The Edge’s queries on the white knight. “If and when we have new information to share pertaining to the ongoing debt restructuring exercise, we will keep the regulators, market and media posted, subject to corporate governance requirements,” says a Sapura Energy spokesman.

The court documents were part of Sapura Energy and 22 of its subsidiaries’ affidavits of support to gain new convening and restraining orders that effectively halt new, or suspend ongoing, legal actions or proceedings by their creditors.

Last Wednesday, the court granted Sapura Energy and its 22 subsidiaries fresh orders to hold court-convened meetings with creditors within three months. It also allowed a three-month restraining order on the company’s creditors. The orders — effective until June 10 — will give the group more time to restructure its debt.

In a March 8 statement, Sapura Energy group CEO Datuk Anuar Taib said, “We acknowledge the lengthy negotiation process and would like to thank our financiers and trade creditors for their cooperation during the past year. This has been an uphill journey and we have now come to a crossroad.

“We need to offer a fair landing to our financiers, and at the same time ensure that our trade creditors, which include small and medium Malaysian enterprises, are not short-changed.”

The previous convening and restraining orders granted to Sapura Energy on March 10, 2022, were extended on June 8 last year, and expired on March 10, 2023.

The court documents stated that the white knight would be an “integral part” of its restructuring that would see a capital injection of up to RM1.8 billion into the Sapura group through a subscription of redeemable convertible loan stock. The proceeds, among others, will be used to settle outstanding debts owed to the group’s local vendors in the interest of preserving and protecting the Malaysian O&G ecosystem, as well as non-Malaysian O&G service providers, as they are essential to the continued operation of the group and its core businesses.

As part of the newly proposed plan, Sapura Energy said it would need to undertake several corporate exercises, including a share capital reduction, the consolidation of its share capital, the issuance of new shares and the issuance of irredeemable convertible unsecured Islamic debt securities (ICUIDS).

The proposed share consolidation would see, among others, 20 Sapura Energy shares converted into one. The company will then issue 500 million shares at RM1 each to its MCF creditors as part settlement of the amount owed.

Sapura Energy has also proposed the issuance of ICUIDS worth RM1.5 billion to its MCF creditors as part settlement of the amount owed.

Permodalan Nasional Bhd is currently the single largest shareholder of the group with a 28.26% stake, or 4.5 billion shares. The state-owned fund management company also holds the majority of the O&G player’s Islamic redeemable convertible preference shares (RCPS-i) of 2.35 billion units, or more than 98%, that it subscribed for in 2018.

The RCPS-i are convertible to ordinary shares on a one-for-one basis upon maturity on Jan 29, 2024. Under the new proposal, Sapura Energy has proposed a reduction of the conversion ratio to one RCPS-i for every 0.4 share.

The group is also mulling the sale of some of its assets, including its remaining 50% stake in SapuraOMV for RM2.25 billion, which will be used to pay off some of its debts.

Sapura Energy said it would be able to settle about RM4.75 billion of its borrowings within seven years through asset disposals and cash proceeds generated from existing and new contracts.

In the same March 8 statement, Sapura Energy said that over the past 12 months, it had made significant progress with its reset plan as it focused on completing the debt restructuring exercise and turning around its operations.

Despite limited working capital and macroeconomic challenges, its financial performance had improved compared with the previous fiscal year, said the group, with all segments posting positive earnings before interest, taxes, depreciation and amortisation (Ebitda) in the first three quarters of FY2023.

As of 3QFY2023, the group’s order book stood at RM6.8 billion, with contract wins for the year amounting to RM3.4 billion. Meanwhile, the order book of its jointly controlled entities stood at another RM5.7 billion.

“The group retained its capabilities despite financial drawbacks, improving the prospects of the company. The beneficiaries of this turnaround include our vendors and the entire value chain in which we operate,” said Anuar.

Sapura Energy also said in its response to a query from The Edge that the proof of debt exercise with its trade creditors is on track, with the adjudication process currently ongoing. The companies under the scheme have received about RM1.5 billion in claims, submitted by about 2,300 vendors.

Last September, Malaysia’s Corporate Debt Restructuring Committee (CDRC) approved Sapura Energy’s application for the committee’s assistance in mediating in its debt restructuring negotiations with financiers of its MCF facilities. Sapura Energy presented a draft proposal on the restructuring scheme to the financiers on Oct 20.

“The new convening and restraining orders will allow us to complete discussions with our financiers. Through CDRC’s mediation, we aim to reach an understanding and approval in principle with financiers on the complex debt restructuring exercise involving RM10.3 billion in MCF facilities,” said Anuar.

The committee has extended the standstill period for Sapura Energy and its relevant subsidiaries to Sept 9, 2023.

The share price of Sapura Energy had risen about 25% year to date to 4.5 sen last Friday, giving the group a market capitalisation of RM719 million.

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