Seadrill’s sale of stake in SapuraKencana a slightly negative development

KUCHING: Analysts view Seadrill Ltd’s (Seadrill) sale of its remaining stake in SapuraKencana Petroleum Bhd (SapuraKencana) as slightly negative given the former has always been deemed a strategic partner of the latter.

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), Seadrill Limited (Seadrill) announced yesterday that the group has sold its remaining stake of approximately 490 million shares or equivalent to 8.2 per cent of its remaining stake in SapuraKencana for approximately US$195 million.

“The proceeds from the share sale will provide additional liquidity and will be used for general corporate purposes,” Kenanga Research said.

Kenanga Research gathered that the transaction was done through book-building exercise at the price of RM1.58, implying a discount of 10.7 per cent to the last traded price of RM1.77. It noted that the takers consist of both foreign and domestic investors.

“We think this is slight negative to SapuraKencana at this juncture as Seadrill has always been deemed to be a strategic partner of SapuraKencana. The sale of SapuraKencana shares near the historical low is not entirely surprising given Seadrill is facing pressure to conserve cash,” the research arm said.

Looking at Seadrill’s latest financial statements, Kenanga Research reckoned that the company is currently in a relatively stretched position in terms of gearing and cash flow.

The research arm pointed out that the cash pile of US$1.04 billion is insufficient to pay off the short term (ST) borrowings and operating cash flow is likely to weaken in view of industry slowdown which is expected to persist.

“Previously, Seadrill had raised US$300 million from the sale of 230 million shares of SapuraKencana, bagging a gain of US$165 million in April 2014.

“This was at an implied selling price of RM4.20 per share assuming an exchange rate of RM3.22 per US dollar,” it said.

Kenanga Research believed Seadrill recorded a loss of US$11 million as the book value stood at US$206 million as at December 31, 2015.

It recalled that the book value was impaired from US$373 million in September 2015 meaning that the original investment cost was much higher.

On the outlook for SapuraKencana, Kenanga Research believed margin erosion is a concern in all three segments in the near-term even with oil prices recovering to US$50 per barrel (bbl) as most oil majors are still in aggressive cost optimisation mode.

No changes were made to the research arm’s forecast for now pending further guidance from management on the impact of Seadrill’s exit.

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