Sa­pura En­ergy seals OMV deal

Com­pa­nies to set up joint ven­ture called Sa­pura OMV Up­stream

The Star Malaysia - StarBiz - - Companies & Strategies - By TOH KAR INN karinn@thes­tar.com.my

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.

It’s a deal: Shahril and Pleininger shak­ing hands af­ter the sign­ing cer­e­mony to set up Sa­pura OMV Up­stream.

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