KUALA LUMPUR: Sapura Energy Bhd has proposed a RM4 billion rights issue as part of a broader strategic plan to strengthen the group’s core businesses, boost financial position and create better value for its shareholders.
The exercise entails raising up to RM4 billion, of which up to RM3 billion will be through the rights issue of ordinary shares with free warrants and up to RM1 billion through the rights issue of Islamic redeemable convertible preference shares.
In addition to the rights issue exercise, the group said it is evaluating various options which may involve the listing of its E&P (exploration and production) business and exploring a possible strategic partnership for its drilling business.
Sapura Energy president and group chief executive officer Tan Sri Shahril Shamsuddin said the group is in a strong growth phase today and it is determined to capitalise on the emerging opportunities.
“The rights issue will enable us to strengthen our balance sheet and continue with our growth momentum which includes bidding for and executing higher value projects globally,” he said in a statement.
Sapura Energy said the group is actively venturing into a larger addressable market in key regions including the Middle East, Africa, Latin America, Caspian and Mediterranean as well as South East Asia and Australia.
To-date, the group has secured contract wins of RM4.5 billion. The Group’s order book has increased to RM16.7 billion with contract wins across Mexico, Brazil, India, Australia and Malaysia, since the start of the financial year.
It said the group is seeking participation for the exercise from all substantial shareholders and has since secured letters of support from Sapura Technology Sdn Bhd and Permodalan Nasional Bhd (PNB).
“Sapura Technology, a direct shareholder which holds 16 per cent, has expressed its intent to participate in the rights issue for a minimum amount of RM300 million.
“Meanwhile, PNB has indicated its support for the exercise by committing to subscribe to its entitlement and is looking at the prospect of taking up excess shares up to an agreed amount to be determined later,” it said.
The proposed rights issue is subject to shareholders’ approval at an extraordinary general meeting to be convened later.
Meanwhile, TA Securities in a recent note expects stronger profits for Sapura Energy for the remainder of the year due to engineering and construction activities typically pick up in second (Q2) and Q3 of each year, full contribution from SKD Esperanza, new contracts for SKD Alliance and SKD Berani and higher oil price.
“To recap, management estimates that drilling profits would breakeven given a minimum deployment of seven rigs from total fleet of 15,” it said.
TA Securities said this implies that the drilling segment may turnaround from Q2 2019 onwards on the back of seven working rigs.
The research house said the separate listing of the group’s E&P assets is a potential catalyst, which would unlock value for Sapura Energy’s prized oil and gas (o&g) fields.
“If valuations are attractive, significant cash proceeds may be raised to boost Sapura Energy’s balance sheet, and meet working cap and capex requirements.
“We believe the benefits would more than offset the impact of diluted E&P profits. Furthermore, we believe there is upside to valuations, as the book value of Sapura Energy’s o&g assets incorporate oil price assumption of less than US$45 per barrel estimate,” it said.
TA Securities has maintained its “buy” call on Sapura Energy with lower target price of 85 sen from 86 sen previously.