• Sapura Energy proposed a debt restructuring plan which will provide a framework for firm and committed payment to its creditors while improving its liquidity position.

• Among others, the management is seeking for a haircut from selected creditors as well as conversion of some of its huge debts into perpetual instruments that can be converted into the company’s new shares. This scheme may also lead to the eventual disposal of its drilling arm and stake in SapuraOMV.

• There is no impact to our earnings forecast, however it posed some downside risk to our TP due to potential dilution impact from the issuance of new shares.

• At this juncture, we maintain our BUY recommendation with unchanged TP of RM0.15 which implies 0.3x FY23F P/B.

Proposed a debt restructuring plan

Sapura Energy announced that it will have a court-convened meeting with its creditors soon to ask for the latter’s approval on its proposed debt restructuring plan. Among others, management is seeking for (i) 50-90% haircut from selected creditors that formed the outstanding trade debts of RM2.4bn, (ii) conversion of 20% of the existing multi-currency facilities (MCF) debts that is worth RM10.2bn into zero-coupon perpetual instruments that is convertible into new Sapura Energy shares, (iii) conversion of 55% of the existing MCF debts into zero-coupon perpetual instruments that is exchangeable into existing shares in Sapura Drilling SB, Sapura Technology and Sapura Geoscience and (iv) fresh financing of RM1.8bn from existing MCF financiers which will be backed by its 50% equity stake in SapuraOMV.

Our view

Recall that the company has been served with winding-up petition by creditors asking for repayment of outstanding debts of c.RM50m. The company also has breached its financial covenant due to negative EBITDA in 2QFY22/3QFY22. This critical debt position and unsustainable capital structure has led to the urgent need for a debt restructuring plan. Should the proposed plan is approved, we believe it can reduce its liquidity constraint and ensure the survival of its business operation. There is no impact to our earnings at this juncture. However, there is some downside risk to our TP arising from potential dilution impact due to conversion of perpetual instruments into the company’s ordinary shares.

Maintain BUY with unchanged TP RM0.15

Maintain BUY on Sapura Energy with unchanged TP of RM0.15 which implies 0.3x FY23F P/B. We think the potential upcycle in O&G offshore projects should improve its earnings outlook, hence potentially leading to the agreement on its debt restructuring plan.

Source: BIMB Securities Research - 14 Mar 2022