PublicInvest Research

Sapura Energy - Asset Monetisation Begins

PublicInvest
Publish date: Tue, 31 May 2022, 10:19 AM
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Sapura Energy (SapE) announced that its wholly-owned subsidiary, Sapura 3000 Pte Ltd has entered into a Memorandum of Agreement (MOA) with Safeen Feeder Company – Sole Proprietorship LLC, a company in the Abu Dhabi Ports Group of Companies, for the disposal of its pipe-laying and crane vessel known as Sapura 3000 for a total cash consideration of USD71.5m (approximately RM312.8m). This marks the first asset monetisation by the Group, as part of the option to improve its liquidity position though impact to the Group’s earnings from this disposal is negligible. The deal is expected to be completed by mid-July 2022. Upon completion, the Group is expected to recognise proceeds from asset disposal of RM308.6m, translating to RM0.02/share, and net disposal gain of RM503,700. Earnings for the Group are expected to remain weak given the difficulties in cost management for legacy projects, though recent press reports with regards to the potential financial assistance from various parties have lifted investors’ sentiment. We upgrade our call to Neutral call with a revised sum-of-parts TP of RM0.05 (from RM0.03), incorporating the cash proceeds from this transaction.

  • The disposal involves the sale of an ABS DP2 Self Propelled Heavy Lift Pipe Laying vessel equipped with 3000 Short Tonnes Revolving Mast Crane. The Vessel is capable of pipe laying in deep and shallow water projects. The Vessel was built in 2008 and is currently sailing under the flag of Malaysia. The price consideration of USD71.5m (or approx. RM312.8m) for Sapura 3000 is based on willing buyer willing seller basis after conducting an international Request for Proposal process. In essence, the Group is disposing this vessel at just 1x PBV. The payment schedule will be i) a deposit of 5% on the execution of the MOA and a further 5% within 3 banking days from the date of the Buyer’s Board of Directors approval being obtained, and ii) the balance 90% is to be paid on delivery of the Vessel. The proposed deal is targeted to be completed by 15th July 2022.
  • Financial impact. Once completed, the Group is expected to recognise proceeds from asset disposal of RM308.6m and net disposal gain of RM503,700. The proceeds will be utilised for working capital and to reduce the borrowings of the Group. Based on FY22 unaudited numbers, the Group’s borrowing stood at RM10.6bn and is expected to reduce by ~2.9% upon completion with negligible impact to its core earnings.
  • Outlook. This proposed disposal comes as no surprise as management has indicated its intentions of disposing its non-core offshore marine assets as part of the Group’s focus on long-term sustainability and to improve its liquidity position. In March, Sapura reported headline net loss of RM8.9bn (core net loss: RM2.2bn) for the full year FY22. Also, it is still very likely to be classified as an affected issuer (ie. PN17) due to deficiency in its share capital and its viability as a going concern. The Group has acted to resolve liquidity challenges, including negotiations with clients of existing contracts, with the aim of amicable solutions to recover or limit losses. It is also in the midst of negotiating with its vendors on outstanding payments as well as lenders through existing or new facilities and under the Scheme of Arrangement (SOA). Meanwhile, discussion on further asset monetisation is also on-going.
    Press reports and speculations about Petronas buying a significant stake in Sapura Energy arose in mid-March. However, this was denied by Petronas, stating that it has always been and will continue to be strictly guided by an established framework for any investment or divestment consideration. Another recent article has quoted sources familiar with the goings-on at the Ministry of Finance Incorporated (MoF Inc.) that they are currently working on a proposal and will step up to offer a helping hand to the Group with an assistance package. This has undoubtedly lifted investors’ sentiment, with share price up by 183% to RM0.085, from the year-to-date low of RM0.03. While a positive development sentiment-wise, fundamentals of the Group remain weak with much more rehabilitation needed.

Source: PublicInvest Research - 31 May 2022

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