PNB on its Sapura investment
Fund: Support for Sapura Energy cash call based on merits of investments
PETALING JAYA: Permodalan Nasional Bhd (PNB), which has come under scrutiny for supporting a RM4bil cash call by Sapura Energy Bhd, said that it was putting more money into the oil and gas company based on the merits of investments.
Brushing off a view that the fund is backing the massive rights issue of the oil and gas company (O&G) because Malayan Banking Bhd (Maybank) is believed to be one of the creditors of Sapura Energy, PNB said it “only pursues investment opportunities which meet the fund’s stringent investment criteria and objectives.”
“All investment opportunities presented to PNB are evaluated fully based on their own merits.
“In this instance, we believe that Sapura Energy’s proposed recapitalisation plan presents PNB and all its shareholders with the potential of strong returns, given the attractive entry price and position of the company to benefit from the recovery of the O&G industry,” the fund said via email replies.
PNB is the second largest shareholder in Sapura Energy, owning about 12%.
The fund is also the controlling shareholder of Maybank, which is a core holding in the fund’s portfolio of companies.
The bulk of the RM4bil rights issue is to be utilised to pare down Sapura Energy’s debts of RM16bil, of which RM10.9bil is long-term debt.
Sapura Energy’s two-year reprieve on the debts is said to end in the first quarter of next year.
PNB’s support for the rights issue comes at a time when interest from other institutional funds such as the Employees Provident Fund (EPF) and Kumpulan Wang Amanah Pencen (KWAP) has been waning or uncertain.
EPF now owns less than 5% of the stock from 11.27% it had in April last year and unlikely to subscribe to the rights issue given the issue of excessive compensation raised at the shareholders meeting two months ago.
As for KWAP, which owns just below 7% and sitting on paper losses, it has yet to decide whether it wants to participate in the rights issue.
In July, the Minority Shareholders Watchdog Group (MSWG), which is backed by institutional shareholders, raised the issue of Sapura Energy’s president and chief executive Tan Sri Shahril Shamsuddin receiving excessive remuneration.
Shahril received RM71.92mil in total remuneration for the financial year ended end January 2018 despite the company making a loss. In 2017, Shahril was paid RM84.24mil.
Later the company disclosed that Shahril’s compensation was due to the company’s debt covenants that tied down his 16% shareholding in the company.
PNB said that it shared the concern raised by other institutional shareholders over the excessive executive compensation that was brought up during the company’s AGM.
“PNB has been informed by Shahril on his commitment to discuss with the board of directors of Sapura Energy on a revised remuneration package to be based on relevant key performance indicators and benchmarked against global oil and gas companies.”
“We understand that as part of the recapitalisation exercise, Sapura Energy board shall be reviewing the executive compensation of key management to ensure that it is fair and well-aligned with shareholders’ interests,” it said.
Back to the company’s borrowings, the fund said it recognised that one of the major issues at Sapura Energy is the significant debt exposure it has with both domestic and international financial institutions.
Apart from a rights issue, Sapura Energy plans to reduce debts through listing its explo- ration and production (E&P) business and a potential partnership for its drilling arm.
PNB said it was approached by Sapura Energy to seek its support for the proposed recapitalisation exercise and it has expressed interest to participate in the rights issue, both for their share of entitlement and excess shares.
“After careful consideration and evaluation, PNB views the proposed recapitalisation plan positively as it has the potential to generate returns and create more value for the company’s shareholders,” it said.
According to the fund, Sapura Energy is one of the few local bumiputera companies with a strong track record and significant global presence in over 20 countries.
Sapura Energy’s single largest shareholder currently is Sapura Technology Sdn Bhd with a 16.5% interest.
Sapura Technology is the vehicle of Shahril and his brother Datuk Shahriman Shamsuddin.
However, with Sapura Technology only intending to participate in the rights issue for a minimum amount of RM300mil, its shareholding in the listed entity would be potentially diluted to about 12.6% after the exercise.
With PNB committed to subscribe for both its entitlement and excess shares, it may emerge as Sapura Energy’s single largest shareholder.
Notably, this would be PNB’s second fresh capital injection via a rights issue after doing so for its 62%-owned Velesto Energy Bhd (formerly UMW Oil & Gas Corp Bhd) recently.
Shares of Sapura Energy closed at 34 sen on Friday, down from 60 sen on Aug 24 when the recapitalisation plan was first announced. Its market cap now stood at RM2bil.
The company, which posted a net loss of RM135.7mil in the first quarter of FY19, expects to complete the exercise by the end of this year subject to shareholders’ approval.