Could it be PNB’s investment in Sapura Energy is a small investment, less than 1% of PNB”s total assets under management, as stated by its CEO in an interview in December 2021 in a business weekly?

Contrary to what PNB states on its website, investee companies in which PNB and the unit trust funds under its management holds a majority or single largest stake are classified as strategic companies, while companies with more than 10% stake or more than RM1 billion in value are classified as Core companies. Such a callous and cavalier response would have this CEO shown the doors at any other international fund.

In early 2019, PNB forked out RM2.68 billion increasing their shareholding from approximately 12% to almost 40% in Sapura Energy and at the price of 4 sen, its 40% stake in the oil and gas company has a market value of approximately RM250 million, a huge paper loss compared to the sum it had invested into the company.

Since PNB was established as one of the initiatives to correct the socio-economic imbalance in Malaysian society through wealth and opportunities creations, it is a wonder why they increased their investments into Sapura Energy when another institutional fund, EPF had, 6 months earlier, progressively sold down their holdings from a high of 13.6% in 2016 to just 2.89% at the end of May 2018?

Its CEO had said PNB was working closely with the board and management in terms of what their needs are, relative to the challenges that they were facing. 

Did PNB really play its role in its stewardship framework, as an active shareholder in one of the core companies in its investment portfolio, undertaken by Sapura Energy in April 2013 and February 2014 when it took on additional debts to acquire the tender rig business of Seadrill Ltd for RM8.78 billion and Newfield Exploration Co’s Malaysian assets for RM2.83 billion? 
 
In November 2018, the company sold off 50% of SEB Upstream Sdn Bhd, which owned Newfield Exploration’s Malaysian assets to OMV Exploration & Production GmbH for RM2.25 billion and OMV forked out RM1.46 billion as repayment owed by SEB Upstream to Sapura Energy. 

Yet within the same period, the company undertook a fund raising exercise where PNB participated and increased its stake, taking it from 12% to almost 40%, raising almost RM4 billion for the company.

Following the continuous drop in oil prices in the last few years, was it a feasible strategy for the company to establish a footprint and have a continued presence in countries such as Brazil, Mexico, Venezuela, Saudi Arabia, Turkey, Angola, Equatorial Guinea, where some of these countries were facing contraction in their economies and oil output?

In investing further into Sapura Energy, was PNB acting in the best interest of its unit trust holders? 

To recap, in 2006, PNB was the substantial shareholder in 8 listed entities where CIMB Bank proposed a mega merger comprising Sime Darby, Kumpulan Guthrie Bhd and Golden Hope Plantations Bhd group of companies. 
 
In publicising the merger, CIMB Bank said it would be a merger of equals and the heart of the integration was in plantations and property, to create a global leader in oil palm plantations. 

A special purpose vehicle, Synergy Drive Sdn Bhd was created and seed–funded by CIMB Investment Bank solely to undertake the merger where it would buy the assets and liabilities of the 8 listed entities.

Cleverly cloaked as a merger and not a takeover by Sime Darby, PNB would be barred from voting in each AGM due to the ruling on related party transactions, the exercise completed in 2007 with PNB emerging with a 45% stake in Synergy Drive. This was affirmed when post merger, Synergy Drive was renamed Sime Darby.

Has the merger delivered on its major objectives as outlined in 2006? 

Critics say the plantation business has not realised its full potential. The property segment has been criticised for perceived underperformance, given its potential as the largest listed Malaysian developer by land bank, with about 28,000 acres.

Sime Darby’s performance throughout the years has been patchy and not on a stable trajectory. Sime Darby explained that it had not been able to chart a consistent growth path as it has separate divisions in different industries with different risk profiles. Except for the plantation division which generates the bulk of its earnings, other divisions have considerable variations year-to-year in their performance.

The previous CEO of Sime Darby commented publicly that the company might undertake another restructuring exercise to break off some or all its divisions in the near future.

For PNB, is there a better path forward for its investments in Sime Darby? And, can such a break-up be done with maximum benefit to PNB?

Taking the comments from Najib Razak who, in a Facebook posting proposed that either Khazanah or Petronas be called in to rescue Sapura Energy or its unit trust holders would suffer huge losses in their investments, it appears that even the former prime minister doesn’t have the confidence or belief in PNB having the capability and expertise to manage this investment.

It takes more than just having a strong belief in the board and the leadership team that’s in place right now in working through the challenges Sapura Energy is facing.

Khazanah Nasional and Petronas did not succeed in trying to rescue Malaysia Airlines before it was taken private using the same approach. Earlier, Petronas failed in its endeavour to resuscitate Bank Bumiputra. 

Going by the experience of Khazanah Nasional in recruiting two foreigners to revive the fortune of Malaysia Airlines which failed spectacularly, recruiting a foreigner, touted as a restructuring expert, into the Board of Sapura Energy will be just another public relations exercise that is unlikely to bear any fruit. – April 13, 2022.

FLK reads the Malaysian Insight.