CASH-STRAPPED oil and gas service provider Sapura Energy Bhd, is in dire need of restructuring or a government bail out due to bad management decisions, but Putrajaya must resist bailing the government-linked company (GLC) using taxpayers’ funds, an economist said.

Given that the price of crude oil and gas has improved in recent years, the company should have been able to get out of the red, but instead several of its subsidiaries have been served with winding up notices.

While there have been calls to bail out the company which has a total debt of US$2.44 billion (RM10.27 billion) currently, economists said privately held companies should not be bailed out using taxpayers’ money.

Yeah Kim Leng, an economist at Sunway University said Sapura likely suffered from high debt to end up in its current position.

“One likely cause is the debt level and the debt servicing could have resulted in this scenario,” Lim told The Malaysian Insight.

“Poor management, leakages and excessive spending could also be contributory.”

Lim said a closer look into the company’s books is required to determine why Sapura is failing

Allow Sapura liquidatation

Yeah said one of Malaysia’s biggest problems is “moral hazard”, whereby companies such as Sapura engage in risky behaviour or fail to act in good faith because it knows the government could step in to bear the economic consequences of their behaviour.

“They engage in bad behaviour and leave the clean-up to the government. We have seen it in many of the sordid corporate stories.

“The profits (of these companies) are privatised and yet taxpayers’ money is used to bail them out.

“In the interest of objectivity, let a third party recommend a solution: the first step is for it to go to the private sector for restructuring.

“If it is not worth saving, let liquidation take place. A market place approach would be the preferred policy given our condition.”

Malaysia is also in no position to take on a private company’s debt when the national debt level is almost at RM1 trillion, Yeah added.

“Our fiscal position is very high. The government is not in a strong position to give a bailout to commercial ventures,” Yeah said.

“It will be a long term obligation not only to the current taxpayers but also the future generation.

“We already have 1MDB to pay for. We have to be more discerning about throwing good money after bad investments,” Yeah said.

“There are enough investors out there looking for good assets to purchase, companies that they can invest in for cheap. That should be the way.”

Petronas recently denied speculation that it was in talks with the government to take on “a significant stake” in Sapura.

Political mileage

Political analyst James Chin of the University of Tasmania said former prime minister Najib Razak as well as PKR’s Rafizi Ramli are using Sapura for political mileage.

“The reason why it is such a big deal is because Najib has such a large brand name but the bigger point is that it is consistent with all the financial scandals that Najib is involved in and the Sapura issue happened when Najib was around (as PM).

“I think the other reason why it has attracted so much interest among the public is that people are shocked by the amount earned by the CEO of Sapura. People are going through hard times and this guy is earning millions.

“People are shocked that the Malay elites can earn this kind of money regardless of how well the company is doing.

“Sapura is going under and yet the guy (CEO) walks away with millions and is totally unaccountable.”

Sapura’s CEO Shahril Shamsuddin earned RM71.92 million in 2018 and RM84.24 million in 2018 in salary and bonuses. He is also the single largest shareholder of Sapura Energy holding a 15.9% stake.

Najib has suggested that the government should protect Sapura from bankruptcy by providing loans or getting Petronas or Khazanah Nasional Bhd to take over ownership of the group from anchor shareholder, Permodalan Nasional Bhd, which has a 40% stake.

He argued that the people would face big losses if Sapura Energy was not saved, citing RM4 billion in losses to holders of Amanah Saham Bumiputera and RM10 billion in losses to Maybank, as well as the 10,000 employees that would lose their jobs.

Rafizi however argued that the money could be used for capacity building among small entrepreneurs and the youth, and for the granting of education loans, would instead only benefit the elite.

He added that he will present the figures in the coming days to remind the people to not “fall for Najib’s economic management ideas”.

Last week, Rafizi announced his return to active politics after taking a step back in December 2019 to focus on a start-up project.

Billions in losses

The troubled company posted a net loss of RM6.61 billion in its fourth quarter ending January 2022 compared to a loss of RM216.03 million for the same period last year.

This is largely due to impairment on goodwill worth RM3.29 billion and impairment on property, plant and equipment worth RM2.1 billion.

For the full year ending January 31, the group recorded a net loss of RM8.9 billion — its highest ever — while its annual revenue fell by 22.84% to RM4.13 billion from RM5.35 billion.

Following its dismal performance, Sapura has appointed restructuring specialist Cosimo Borrelil as a non-independent and non-executive director.

In its filing to Bursa Malaysia, Sapura said Borellli is well regarded for his work as an independent director to listed companies internationally, especially those undergoing or targeting turnarounds, mergers and acquisitions, divestments and special situations.

The company is also  undertaking a massive debt restructuring involving banks, vendors and contractors.

Winding-up petitions

In February, five wholly owned subsidiaries of Sapuara were served winding-up petitions in relation to unpaid contract sums, settlement agreement sums and judgment sums totalling RM47.5 million.

The five subsidiaries are Sapura Fabrication Sdn Bhd, Sapura Project Services Sdn Bhd, Sapura Subsea Services Sdn Bhd, Sapura Offshore Sdn Bhd and Sapura Pinewell Sdn Bhd.

Earlier this month, three more of its subsidiaries were served with winding up notices for non-payment of outstanding sums.

The three are Sapura Fabrication Sdn Bhd, Sapura Offshore Sdn Bhd and Sapura Project Services Sdn Bhd.

Sapura Fabrication was served with a winding-up petition by Posh Subsea Pte Ltd, due to the former being unable to pay according to a payment plan for US$3.99 million plus interest.

Sapura Offshore was served with a petition by Lincoln Energy Sdn Bhd on the basis of non-payment of invoices of RM150,150, allegedly owing under a contract for the provisions of goods sold and delivered.

It was served another winding-up petition by Semco Salvage (V) Pte Ltd in relation to an outstanding sum of US$443,035.

Sapura Project Services  was served with a winding-up petition by Danamin (M) Sdn Bhd for the sum of RM4.24 million under a construction contract for the provision of mechanical works. – March 31, 2022.