Malaysian integrated services major Sapura Energy is facing renewed financial challenges as it has reported a large after-tax loss of 1.52 billion ringgit (US$363 million) in the quarter ending 31 July 2021, and has also reported liquidity concerns.

The company said on 30 September 2021 the net loss was due to the recognition of foreseeable losses and higher costs on certain projects, emphasising Taiwan and India.

Group revenue declined 38.7% to 747 million ringgit compared to the same quarter last year as the company's engineering & construction and operations & maintenance business segments earned less.

The Covid-19 pandemic is severely impacting on the company's financial performance.

“Similar to our industry peers, we bore the brunt of both the direct and indirect costs of the pandemic,” said chief executive Anuar Taib.

“We are currently negotiating amicable solutions with our clients, but in these extraordinary times, clients are cautious and reluctant to resolve claims quickly.”

The company said its efforts at a turnaround are "hampered by liquidity concerns".

Liquidity concerns

Sapura has nearly 11 billion ringgit ($2.6 billion) of debt, which far surpasses its market capitalisation.

Malaysian financial analyst Kenanga Research said all of Sapura's long-term debt was reclassified into short-term debt due to a breach of financial covenants, with its net gearing "ballooning" to 1.3x during the quarter from 1.1x in the previous quarter.

"That said, the group is hopeful of receiving a waiver from lenders for the breach, which will see these borrowings reclassified back to long-term debt in the coming quarter," added Kenanga.

Chief executive Taib said Sapura is reviewing the group’s capital structure and financial framework, as well as the operating model and future business direction.

Sapura chairman Tan Sri Shamsul Azhar Abbas said: "The board will be working hard with management and key stakeholders, especially lenders, to turn around the group as soon as possible.”

Another analyst from AmInvestment Bank said that while Sapura still has unutilised working capital facilities of 612 million ringgit, Sapura’s cash flows could be constrained should vendors impose tight credit terms against its trade payables of 3.3 billion ringgit.

"Hence, the group is exploring asset divestments to improve liquidity that may imply further impairments in the coming quarters," added AmInvestment Bank.

Effects of Covid-19

Sapura said it estimates that cumulated Covid-19 direct costs have escalated to 397 million ringgit as of 31 July 2021 with 111 million ringgit incurred in the first half of this financial year.

“The consequential costs arising from these can be between twice to four times, depending on the type of project,” explained Anuar.

The impact of the pandemic to operations, coupled with project execution delays primarily in Taiwan and India, resulted in the group’s disappointing performance in the current quarter, said Sapura, adding that it expects the current hurdles and uncertainties to continue in the second half of the year.

The company's current orderbook stands at 7.5 billion ringgit, boosted during the quarter by two new contracts with Australia's Santos and a multi-year pipelay contract with Brazil's Petrobras.

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