Sapura Energy seals OMV deal
Companies to set up joint venture called Sapura OMV Upstream
WHEN Sapura Energy Bhd embarked on a restructuring exercise this year, it was the group’s main objective to pare its high debts.
Sapura Energy had set out to complete two corporate exercises – selling a 50% stake in its oil and gas (O&G) exploration and production (E&P) arm, Sapura Upstream Sdn Bhd to Austria’s OMV Aktiengesellschaft (OMV AG) as well as to launch a rights issue that will see it raise some RM4bil.
Yesterday, Sapura Energy finalised its first corporate exercise as it inked a share subscription agreement and shareholders’ agreement with OMV AG to establish joint venture (JV) company, Sapura OMV Upstream.
Sapura Energy shall receive a total of US$975mil in proceeds from this transaction, comprising OMV’s subscription payment for newly issued shares in the JV company of US$540mil, an additional consideration of up to US$85mil, as well as the repayment from refinancing of intercompany debts of US$350mil.
Sapura OMV Upstream has an enterprise value of up to US$1.6bil, representing an equity value of up to US$1.25bil and debt of US$350mil.
Both Sapura Energy and OMV AG have agreed to the additional consideration of up to US$85mil, based on certain occurrences mainly related to the resource volume in Block 30, Mexico, at the time of taking the final investment decision.
According to Sapura Energy president and group CEO Tan Sri Shahril Shamsuddin, the total proceeds of US$975mil will be used for debt repayments of up to US$720mil.
“Another US$160mil will be channeled as working capital, with the remaining proceeds for transaction fees.
“With the injection of new capital and the capabilities of a new partner, we will probably be a bigger company and generate more cash than if Sapura Energy were to do it alone.
“Through this partnership, both parties are bringing technical capabilities and competencies, processes to yield effective economic results, as well as a bigger balance sheet to mitigate risks in this business.
“Although we are giving away half of our E&P arm, that half will be a lot bigger in whole,” says Shahril after the signing ceremony.
Shahril further elaborates that the strategic partnership is well aligned to both Sapura Energy and OMV AG, which facilitated discussions and enabled rapid conclusions.
After all, OMV AG had been eyeing to enter the Asia Pacific market, particularly Southeast Asia.
OMV AG board member upstream and deputy chairman of the executive board Johann Pleininger aims to replicate OMV’s strong growth and success story in Sapura OMV Upstream.
“Malaysia is our priority and we are com- mitted to invest in Malaysia.
“After we have built financial strength, only then we will consider to invest in the neighbouring countries.
“Sapura Energy is our partner of choice, and when compared with other independent oil and gas companies in the region, we found that it has the best visibility of cash flow and quality of asset,” says Pleininger.
Sapura Upstream has oil reserves and resources of approximately 260 million barrels of oil equivalent.
Production and development assets are located in shallow waters offshore Malaysia.
Sapura Upstream currently produces 10,000 barrels of oil equivalent (boe) per day.
Both Sapura Energy and OMV AG are targeting to grow this figure to 30,000 boe per day by 2020, and 60,000 boe per day by 2023.
The group’s orderbook currently amounts to RM16bil, which will last some three years.
Shahril says Sapura Energy is expected to secure more contracts in the next few weeks, which will increase the orderbook figure significantly.
“These contracts are located in the Middle East, India, South and Central America, and Africa.
“Going forward, we will bring in more oil and gas production contracts - mostly gas, which is very good for us because gas demand in the region is increasing and there will likely be a shortage,” he adds.
Following the completion of this joint venture transaction, Sapura Energy’s group total borrowings will be reduced from RM16.42mil to RM12.52mil, or in net gearing ratio terms, 1.74 times to 0.94 times.
There will also be cost-savings of over RM300mil in interest debt annually.
Meanwhile, that leaves the rights issue of RM4bil, which the group will seek shareholders’ approval during an EGM to be held on Nov 29. In a circular on Bursa Malaysia this week, Sapura Energy announced that it intends to issue 9.9 billion new ordinary shares at an issue price of 30 sen, with 998 million free detachable warrants on the basis of five rights shares for every three Sapura Energy shares held.
Additionally, there will be a renounceable rights issue of up to 2.396 billion new Islamic redeemable convertible preference shares (RCPS-i) in Sapura Energy at an issue price of 41 sen on the basis of two RCPS-1 for every five Sapura Energy shares held.
Both exercises will see RM3bil raised through the rights issue of ordinary shares with free warrants and another RM1bil raised via the rights issue of Islamic redeemable convertible preference shares (RCPS-i).
Should Sapura Energy obtain shareholders approval and proceed with the rights issue, the group’s total borrowings will then be shaved from RM12.52mil to RM9.77mil, or 0.94 times to 0.62 times.
Shahril remains certain of a turnaround in the group’s earnings for the financial year ending January 31, 2020. This will be driven by a growing orderbook, reduction in annual interest debt, as well as higher oil and gas production.