Should banks step in to rescue Sapura Energy?

THIS week, financially beleaguered oil and gas contractor Sapura Energy Bhd revealed its proposed regularisation plan where, upon being carried out, three local lenders may end up becoming substantial shareholders in the company.

The plan, which entails a capital reduction exercise together with debt restructuring, outlines a maximum scenario where, if all convertible securities are converted into ordinary shares, the Finance Ministry and three banks would hold substantial stakes in Sapura Energy – namely Maybank Islamic Bhd (16.31%), CIMB Bank Bhd (7.37%) and RHB Islamic Bank Bhd (5.8%).

This raises critical questions: Why are banks – tasked to be loan providers – emerging as major shareholders in a distressed company?

More importantly, what happened during the initial risk assessment processes when these lenders decided to give out loans to the debt-laden Sapura Energy?

Were there lapses in the due diligence process, or was financial prudence not adequately exercised?

And what about the current development?

If the maximum scenario materialises – where all convertible securities are converted into shares – would this amount to the banks effectively rescuing Sapura Energy? Could there be a conflict of interest?

Critics argue that this maximum scenario may not get past Bank Negara, as the central bank’s approval is likely required for the deal to go through.

Banks, in essence, are loan providers and deposit collectors.

Their roles are extremely important, especially when it comes to preventing financial fallout for both companies and individuals.

How this situation pans out remains to be seen.

However, Sapura Energy has expressed hope that this plan will not only enable its recovery, but also catalyse the growth of the country’s energy ecosystem.

As part of its regularisation plan, Sapura Energy aims to resolve its total borrowings and trade liabilities, which amount to RM12.1bil, of which RM10.8bil are borrowings.

The company hopes to “return to profitability and restore confidence among stakeholders”.