Sapura Energy posts US$2 billion loss

Malaysian operator and contractor Sapura Energy&rsquo s 2021 was one of the most challenging years in its history, as the company &ldquo faced an unprecedented liquidity crunch&rdquo .

Sapura on Friday revealed it had made a net loss of 8.9 billion ringgit (US$2.12 billion) for the financial year ended 31 January and recorded an operating loss of 2.2 billion ringgit on the back of revenues totalling 4.1 billion ringgit.

&ldquo Our current financial constraint is a culmination of many factors, including contracts accepted on onerous terms and operational issues exacerbated by [the] Covid-19 pandemic. These have resulted in significant losses in many projects, impacting our financial position. Almost all of the project losses were from legacy contracts,&rdquo said Sapura chief executive Anuar Taib.

Following a review of its contract performance, businesses and assets, Sapura recognised a 3.3 billion ringgit provision for impairment on goodwill on consolidation and a 2.3 billion ringgit provision for impairment on property, plant and equipment in the 2022 financial year.

&ldquo Our liquidity challenges were also due to an unsustainable debt level and high overdue payables to our vendors, and these challenges became more acute with our working capital facilities suspended since October 2021,&rdquo Anuar admitted.

Sapura has now taken decisive steps to resolve these liquidity challenges, including negotiations with clients of existing contracts with the aim of &ldquo amicable solutions to recover or limit losses&rdquo .

Sapura has already terminated the monopile installation contract for the Yunlin wind farm in Taiwan, following extensive negotiations with its clients.

Sapura recently got a reprieve with the High Court of Malaya granting two orders, including a Restraining Order, which allows it to begin a court-sanctioned debt restructuring exercise with creditors while continuing to operate.

Vendors waiting to be paid

The company is already in talks with lenders to restructure its long-term debt and soon will begin scheme of arrangement briefings with its vendors.

&ldquo We acknowledge that our current difficult situation has impacted our vendors. The proposed scheme of arrangement, which require vendors&rsquo support, when approved, will enable Sapura to carry out a court-sanctioned framework for firm and committed payment to our vendors,&rdquo said Anuar.

&ldquo The framework also ensures we can continue our operations and pay vendors in an orderly manner that is sustainable to our business. We will endeavour to find a fair and equitable solution to all stakeholders.&rdquo

In tandem, Sapura is seeking new funding sources to finance its business as it restructures and streamlines its operation.

&ldquo Businesses and assets that are not core to our future business direction will be divested to reduce our debt,&rdquo Anuar confirmed.

As part of its reset plans, Sapura has reviewed its business direction and enhanced its risk management framework for the bidding of future contracts.

Selective bidding

&ldquo We will be selective in our bids to focus on preferred regions, namely Asia Pacific and the Atlantic, where we can be competitive,&rdquo said Anuar.

&ldquo We will be shifting the balance of our project portfolio in the short to medium term towards transportation and installation and anchor our construction activities at the Lumut fabrication yard.&rdquo

Sapura&rsquo s order book currently stands at 6.6 billion ringgit. In the 2022 financial year, the company was executing almost 60 projects, of which 63% of the revenue was from legacy contracts. In this financial year, revenues from secured projects attributable to legacy contracts will be reduced to about 25%.

Sapura&rsquo s 2022 financial year revenues totalled 4.1 billion ringgit, down 22.8% on the previous 12 months, mostly because of lower amounts from its engineering and construction segment.