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Nikkei Markets

Sapura Energy in talks to sell half of upstream unit

Suspends ongoing listing process of unit while negotiating with Austria's OMV

Sapura Energy has been considering various options to boost its finances (Courtesy of Sapura Energy)

KUALA LUMPUR (Nikkei Markets) -- Malaysian oil-and-gas services firm Sapura Energy said Wednesday it is in talks to sell half of Sapura Upstream to an Austrian company and suspend listing process for the exploration and production unit.

The 50% stake in Sapura Upstream has an enterprise value of $1.6 billion, Sapura said in an exchange filing. Sapura and OMV AG, an industrial company headquartered and listed in Vienna, have agreed to negotiate the deal on an exclusive basis, it said.

The company "will suspend any ongoing listing process for Sapura Upstream pending the completion of the negotiations and definitive agreements," Sapura said.

Shares of Sapura rose in Kuala Lumpur trading after the deal was announced. The shares gained 6% to close at 0.355 ringgit apiece, while the benchmark FTSE Bursa Malaysia KLCI ended 0.8% lower.

Sapura Energy has been considering various options to boost its finances, and its stock had recently plunged to record lows following the company's plan to raise up to 4 billion ringgit through a rights issue.

Analysts said the sale, if successful, will allow Sapura to quickly raise funds from monetizing its energy assets compared to its previous plan of an initial public offering.

"It also gives rise to a possibility that the rights issue exercise is no longer the group's last resort to repay its debts, which was a previous concern by investors," said UOB Kay Hian's analyst Kong Ho Meng. He also upgraded Sapura to Hold from Sell and raised target to 0.31 ringgit from 0.29 ringgit.

The agreement signed with OMV also involves plan to establish a strategic partnership, Sapura said. The proposed partnership will comprise Sapura's portfolio of commercially viable gas assets offshore Sarawak, its acreage in new markets in New Zealand, the Gulf of Mexico and Australia, it said.

"OMV AG's existing footprint offers new opportunities for our upstream segment and increases market reach for our services segment where OMV operates," Sapura Chief Executive Shahril Shamsuddin said in a statement.

OMV's upstream assets--mainly concentrated in Europe, Middle East, Africa and Russia-produced 348,000 barrels of oil equivalent per day in 2017.

Sapura has been loss-making for more than three years even as the industry recovers from the precipitous fall in crude oil prices. Analysts have previously flagged the company's high debt that limited its ability to bid for more jobs.

The company booked a net loss of 2.5 billion ringgit in the financial year ended Jan. 2018 and most analysts still expect Sapura to remain in the red in the current fiscal year.

--Alexander Winifred and Jason Ng

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