TRUE blue 30-year oil and gas (O&G) industry veteran Datuk Anuar Taib who took over the helm of Sapura Energy Bhd from Tan Sri Shahril Shamsuddin just a year ago yesterday (March 23) has inherited a chronic state of affairs that no other CEOs would envy him.

This is because he is being confronted by many legacy matters that would have already triggered financial ruptures of sorts leading to the RM8.9 bil kitchen sinking net loss in the company’s financial year ended Jan 31, 2022 which former Premier Datuk Seri Najib Razak deemed as the biggest loss for any government-linked company (GLC) in Malaysia’s history.

Among others, it is worth re-calling that Anuar’s predecessor had in July 2019 revealed to The Edge Financial Daily the existence of share covenant which explains his high remuneration package at a time when the global integrated O&G outfit found itself in the red.

The covenant in lieu of having his shares in Sapura Energy locked up when the group re-financed its whopping RM14 bil in borrowings has enabled Shahril to rake in fat salaries amounting to RM71.92 mil in in the financial year ended Jan 31, 2018 (FYE1/2018) and RM84.24 mil in FYE1/2017.

Back then, Shahril was the single largest shareholder of Sapura Energy with a 15.9% stake. The share covenant was not stated in the annual reports.

“My salary is determined by the board. The board is independent … I did not ask for it (compensation). It is the board which decides on this,” he rationalised.

“When someone offers me this, of course I will accept. I am just an officer of the company. And yet I am willing to do this. I could have sold my shares at RM4 but I didn’t; I didn’t even sell a single share … the opportunity cost is far more (than the compensation).”

That was the period of time when the Employees Provident Fund (EPF) made a surprise move at the Sapura Energy’s AGM to block the re-election of Shahril as the non-independent executive director of Sapura Energy after he was criticised for receiving “excessive” and “obscene” annual take-home pay which totalled RM71.92 mil in FYE1/2018.

“Our stance is to vote against all the directors that are due for re-election in this AGM, including the group CEO,” EPF head of equity research department Nor Azam Yahya was heard addressing at the AGM which took place on July 19, 2018.

He further noted that Sapura Energy’s consistent move to grant Shahril an annual take-home pay of between RM70 mil and RM80 mil was “irresponsible”, especially given the company’s poor financial performance over the last few years

It is worth mentioning that since May 17 that year, the retirement fund had ceased to be Sapura Energy’s substantial shareholder after it pared down its stake to below 5%.

“The shareholders have seen the downside of the company’s financial performance and the impairments. But we don’t see the downside of your pay. I think if we can see the correlation (between your pay) and the headline numbers that will be at least convincing to us,” Nor Azam said, pointing to Sapura Energy’s net loss of RM2.5 bil in FYE1/2018.

“Now you are saying that you are going to double, increase or quadruple the profit. Are we going to expect your pay to be RM200 mil or RM300 mil next year?” Nor Azam added. “I guess you need to be sensitive to the pay and also the shareholders of your company.”

Besides Nor Azam, the Minority Shareholders Watchdog Group (MSWG) had also grilled Shahril for raking in an exorbitant remuneration package which included a RM55 mil bonus, when Sapura Energy was in the red and did not recommend any dividend to the shareholders in FY1/2018.

Since peaking at RM4.84 at end-December 2013, Sapura Energy’s share price has been on a downward spiral amid the prolonged industry downturn that began in late 2014. On the day of that eventful AGM, Sapura Energy had closed at 60 sen.

But fast forward to current times, Sapura Energy is currently trading at 3 sen with its market capitalisation having tumbled from RM30 bil at its peak to a mere RM479 mil. – March 24, 2022

https://focusmalaysia.my/how-the-share-covenant-phenomenon-adds-to-sapura-energys-fault-lines/