Pursuant to Paragraph 9.19(37) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad, the Board of Directors of Sapura Energy Berhad (“SEB” or “Company”) wishes to announce that the Company’s External Auditors, Messrs. Ernst & Young PLT had issued an unqualified audit opinion with a material uncertainty related to going concern in the Independent Auditors’ Report in relation to the Audited Financial Statements for the financial year ended 31 January 2025 (“AFS 2025”).
EXTRACT OF THE AUDIT REPORT
“Material Uncertainty Related to Going Concern
We draw attention to Note 2.1 to the financial statements, which indicates that as of 31 January 2025, the Group’s and the Company’s current liabilities exceeded their current assets by RM11,251.4 million and RM4,312.0 million respectively, and that the Group is facing severe liquidity constraints. As part of the Schemes of Arrangement (“SOA”) sanctioned by the High Court of Malaya at Kuala Lumpur (the “High Court”), the Company and twenty-two (22) of its subsidiaries ("the Scheme Companies") have obtained an interim standstill period effective until the Restructuring Effective Date (“RED”) or the Longstop Date (i.e. 11 March 2026), whichever is earlier. In addition, the Conditional Funding Agreement (“CFA”) and the commercial settlements related to terminated Engineering and Construction (“E&C”) contracts are also conditional upon the occurrence of the RED on or before the Longstop Date. The RED is dependent on the approvals of the Proposed Regularisation Plan by Bursa Malaysia Securities Berhad (“Bursa”) and shareholders. The Company is currently preparing the Circular in relation to the Proposed Regularisation Plan (which includes the Proposed debt restructuring and Proposed fund-raising) for submission to Bursa in May 2025 and anticipate that RED will be achieved by August 2025 or latest by the Longstop Date.
These events or conditions, along with other matters as set forth in Note 2.1 to the financial statements, indicate the existence of material uncertainties that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern. Nevertheless, the financial statements of the Group and of the Company have been prepared on a going concern basis, the validity of which is highly dependent on the timely approvals, execution and completion of the Proposed Regularisation Plan on or before the Longstop Date, which is necessary for the SOA, the CFA and the commercial settlements related to terminated E&C projects to take effect within the stipulated timeframe.
Should the going concern basis for the preparation of the financial statement be no longer appropriate, adjustments would have to be made in the financial statements relating to the amounts and classification of the assets and liabilities. No such adjustments have been made to these financial statements.
Our opinion is not modified in respect of this matter.”
KEY AUDIT MATTERS DISCLOSED IN THE EXTERNAL AUDIT REPORT
The following are the Key Audit Matters as extracted from the Independent Auditors’ Report of AFS 2025:
(a) “Impairment assessment of goodwill on consolidation and property, plant and equipment ("PPE")
(Refer to Notes 2.32(b)(i), 13 and 14 to the financial statements)
As at 31 January 2025, the carrying values of the Group’s goodwill and property, plant and equipment (“PPE”) amounted to RM118.6 million and RM4,833.9 million respectively, which collectively represents 34% of the Group’s total assets.
In accordance with MFRS 136: Impairment of Assets, the Group is required to perform annual impairment test of cash generating units (“CGUs”) to which goodwill has been allocated and whenever there is an indication that the PPE may be impaired by comparing the carrying amount with its recoverable amount. Recoverable amount is defined as the higher of fair value less costs of disposal (“FVLCD”) and value-in-use (“VIU”).
The goodwill relates to the Engineering & Construction (“E&C”) segment. In relation to PPE (including vessels), management has identified them to be tested for impairment in view of the Group’s loss-making position, continued challenges and volatility within the oil and gas industry.
Due to the significance of the carrying values of goodwill and PPE, and the complexity and subjectivity involved in the impairment assessment, we considered this as an area of audit focus.
In addressing the matters above, we have performed amongst others the following audit procedures:
• For the recoverable amounts of cash generating units ("CGUs") determined using VIU, we have:
(i) Obtained an understanding of the relevant processes and internal controls overestimating the recoverable amount of the CGUs.
(ii) Evaluated the key assumptions as disclosed in Notes 13 and 14 to the financial statements used by management in the cash flow projections on whether they are reasonable by comparing to past actual outcomes and by corroborating with industry analysts’ views, management’s plans, existing contracts and/or upcoming bidding opportunities, where applicable.
(iii) Evaluated the discount rates, terminal growth rate (for goodwill) and the methodology used in deriving the present value of the cash flows, with the support of our internal valuation specialists.
(iv) For CGUs to which goodwill and PPE are allocated, we have performed sensitivity analysis on the key assumptions by assessing the impact of changes in the key assumptions to the recoverable amounts.
(v) Assessed the adequacy of the disclosures made in the financial statements.
• For the recoverable amounts of the CGU and vessels determined using FVLCD, we have:
(i) Considered the independence, reputation and expertise of the independent valuers.
(ii) Obtained an understanding of the methodology adopted by the independent valuers in estimating the fair value of vessels and assessed whether such methodology is consistent with those used in the industry.
(iii) Discussed with the independent valuers to obtain an understanding of the assumptions and related data used as input to the valuation models.
(b) Construction contracts - revenue recognition based on percentage of completion method and assessment for foreseeable losses
(Refer to Notes 2.22(i)(a), 3 and 33(a) to the financial statements)
Revenue from construction contracts contributed approximately 56% of the Group’s total revenue for the year ended 31 January 2025. To measure progress over time, the Group applied the input method which is based on the percentage-of-completion (“POC”). POC is determined by the proportion of cost incurred for work performed to date over the estimated total contract cost. The use of POC requires management to exercise significant judgement in estimating the costs to complete. Accordingly, we considered this as an area of audit focus.
In estimating the costs to complete, management considered the completeness and accuracy of its costs estimation including its obligations in respect of contract variations, claims and cost contingencies. It also involved appropriately identifying, estimating and providing for contracts with foreseeable losses. The costs to complete can vary with market conditions and unforeseen events during the contract period.
In addressing the matter above, we have performed amongst others the following audit procedures:
(i) Obtained an understanding of the processes and internal controls over the accuracy and timing of revenue and profit recognised in the financial statements, including the process and controls performed by management to estimate the total contract cost, profit margin and POC of the projects.
(ii) Discussed the basis for estimating total contract cost of significant projects with management to assess the completeness of cost items considered in the budget.
(iii) Evaluated the assumptions applied in determining the estimated total contract cost of significant projects, by comparing the estimated costs to complete with documentary evidence such as original signed contracts and variation orders. We also considered the historical accuracy of management’s budgets.
(iv) Assessed the adequacy of provision for foreseeable losses made for ongoing contracts, where applicable.
(v) Agreed the contract sum used in management’s calculations of revenue to the original contracts and approved variation orders where applicable, on a sampling basis.
(vi) Tested management’s calculations of POC and revenue.”
STEPS TAKEN OR PROPOSE TO BE TAKEN TO ADDRESS THE KEY AUDIT MATTERS THAT RELATE TO THE MATERIAL UNCERTAINTY TO GOING CONCERN AND TIMELINE
(i) On 6 March 2025, the Company and twenty-two (22) of its wholly-owned subsidiaries (the "Scheme Companies") obtained a Court Sanction granted by the High Court of Malaya at Kuala Lumpur (the “High Court”) approving each of the Schemes of Arrangement ("SOA") and compromise between the Scheme Companies and their respective Scheme Creditors ("Scheme Creditors") (the "Court Order") at the Court Convened Meetings ("CCM") held between 21 February 2025 to 27 February 2025 (the "Schemes"). The Company and each of the Scheme Companies lodged an office copy of the Court Order with the Companies Commission of Malaysia in accordance with Section 366 (5) of the Companies Act 2016, as well as with the Labuan Financial Services Authority and Bermuda Registrar of Companies on 10 March 2025 and 11 March 2025 respectively. Accordingly, the Schemes shall take effect, and be binding on the Scheme Companies and their Scheme Creditors, with effect from 11 March 2025 (the “Sanction Date”).
The Court Order also stipulated that no action or proceedings may be commenced or continued against any of the Scheme Companies by any party within the jurisdiction of the High Court, whether the act takes place in Malaysia or elsewhere, from the date of such order until the Restructuring Effective Date (“RED”) (being the date on which the compromise and settlement of the outstanding liabilities of the Scheme Creditors under the terms of such Schemes becomes effective) or the Longstop Date (being the date falling twelve (12) months from the Sanction Date), whichever is earlier, unless with the leave of the High Court.
(ii) The Company had entered into a Conditional Funding Agreement (“CFA”) on 4 March 2025 with Malaysia Development Holding Sdn. Bhd. (“MDH”), a special purpose vehicle controlled by the Minister of Finance, Incorporated and together with the Company (the “Parties”).
MDH has committed to invest by way of subscription, for an amount of up to RM1.1 billion in nominal value of redeemable convertible loan stocks in the Company (the “Subscription”) subject to the satisfaction of the conditions precedent to RED and in accordance with the terms and conditions of the CFA. Under the terms governing the CFA, the Parties had agreed that the CFA would come into effect on the Sanction Date.
The CFA stipulates that the Subscription is subject to the satisfaction of the conditions precedent to RED and occurrence of RED (the “Condition”) on or before the Longstop Date. If the Condition is not satisfied on or before the Longstop Date, the Parties may mutually agree in writing to extend the Longstop Date for such period as may be agreed by the Parties. If the Parties fail to agree in writing to extend the Longstop Date, the CFA will immediately terminate and neither of the Parties will have any further liability under the CFA.
Under the CFA, the proceeds raised from the Subscription shall be utilised by the Company for the settlement or payment of the amounts of the liabilities which are or were previously or may in future become outstanding and payable to creditors of the Group which are Malaysian service providers operating in or supporting the oil and gas sector, incorporated or registered in, and controlled by the residents of Malaysia.
(iii) A key component of the Group's Proposed Restructuring Scheme (“PRS”) is the divestment of SapuraOMV Upstream Sdn. Bhd. (“SapuraOMV”).
On 22 April 2024, the Company and its wholly owned subsidiary, Sapura Upstream Assets Sdn. Bhd. (“SUA”) signed the conditional sale and purchase agreement (“SPA”) with TotalEnergies Holdings SAS (“TotalEnergies”) to sell its entire 50% equity interest in SapuraOMV to TotalEnergies.
All the conditions precedent under the SPA have been fulfilled or waived. Accordingly, the completion of the SPA has taken place on the 9 December 2024 (“Completion Date”) in accordance with the terms and conditions of the SPA, the deed of variation and coordination agreement both dated on 9 December 2024. The proceeds from disposal of SapuraOMV will be utilised to repay the debt under the PRS and expenses related to the divestment.
(iv) The Group has been negotiating commercial settlements for terminated contracts related to Engineering and Construction (“E&C”) projects. During the current financial year, the Group has achieved conditional settlements for several terminated contracts, the details of which are stipulated in Note 45(d) and Note 45(e) to the financial statements. Such conditional settlements are subject to occurrence of the RED on or before the Longstop Date.
(v) Restructuring the Group's business to improve bidding and project delivery capabilities, continue to secure contracts with acceptable margins and cash flows, and implementing a robust financial framework to ensure financial discipline.
(vi) The Company is in an advanced stage of preparing its Practice Note 17 (“PN17”) regularisation plan (“Proposed Regularisation Plan”) pursuant to Paragraph 8.04(3) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad ("Bursa").
Bursa has granted for a further time extension of six (6) months from 30 November 2024 until 31 May 2025 for the Company to submit its Proposed Regularisation Plan to the relevant authorities.
The Company is currently working towards submission of the Proposed Regularisation Plan in May 2025. The Proposed Regularisation Plan comprises, amongst others, the following corporate exercises:
(i) Share capital reduction and share consolidation exercise;
(ii) Proposed debt restructuring as described in Note 2.1(i); and
(iii) Proposed fund-raising as described in Note 2.1(ii).
The Company is tracking the submission and approval process closely. In order to achieve RED, significant condition precedents include, amongst others, obtaining the regulatory and shareholders’ approval on the Proposed Regularisation Plan, and the subsequent execution of the plan.
The Board believes that the Company will successfully obtain the necessary approvals of the Proposed Regularisation Plan from Bursa and shareholders given that, the Company has obtained Court Sanction for the PRS, the CFA from MDH, the successful divestment of SapuraOMV and the various commercial settlements of terminated contracts. The Board anticipates the Company to submit its Proposed Regularisation Plan in May 2025 and to achieve RED by August 2025 or latest by Longstop Date.
Accordingly, whilst the above conditions indicate the existence of material uncertainties which may cast significant doubt about the ability of the Group and of the Company to continue as a going concern, the Board is of the opinion that the going concern basis used in the preparation of financial statements is appropriate and no adjustments were necessary to be made to the financial statements relating to the recoverability and classification of the carrying amount of assets or the amount and classification of liabilities.
This announcement is dated 14 May 2025.
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