In a filing to Bursa Malaysia yesterday morning, Sapura Energy (SAPE) announced that it had entered into a heads of agreement (HOA) with Australian-based OMV Akteingesellschaft to sell 50% of its stake in its unit Sapura Upstream Sdn Bhd. This is signalling to the market that the oil giant is opting for a stake sale rather than an IPO avenue to clear off some of its debt.
Macquarie Equities Research (MQ Research) breaks down the announcement below, and believes that the 50% stake sale will achieve a better valuation as compared to an IPO listing.
- SAPE has signed a HOA with OMV for the latter to acquire a 50% stake in SAPE’s exploration and production (E&P) business, valued at a tentative enterprise value of US$1.6bn (RM6.6bn).
- Better than an IPO – The IPO process for the E&P spin-off has been suspended indefinitely pending negotiations with OMV. The 50% stake sale achieves the same objectives as the IPO but with the benefits of: 1) better valuation (MQ Research believes); 2) lower costs; 3) swifter conclusion of deal, less regulatory requirements; and 4) gaining a strategic partner to secure upstream work for drilling and engineering and construction (E&C).
- Pricing, in-line – The US$1.6bn enterprise value (EV) may change during negotiations, but the current figure is only marginally lower (-5.7%) than MQ Research’s expectation of RM7bn EV. Thus, there is little risk to MQ Research’s sum-of-parts (SOP) valuation.
- Dangling a carrot for rights – MQ Research sees the announcement as positive for the proposed RM4bn rights issuance.
- Scenario analysis – base case 0.59x gearing - Based on the updated assumptions to MQ Research’s scenario analysis, SAPE could reduce gearing below 0.6x if the E&P business is geared up to 0.5x. Note: because debt is not deconsolidated, net gearing of the E&P business will be inverse related to post-exercise net gearing of SAPE.
Action and Recommendation
- Maintain Outperform. The pending 50% sale of the E&P business will help place a floor under MQ Research’s SOP-derived valuation of RM0.53.
Source: Macquarie Research - 13 Sept 2018