Clean-up sale nets SapuraKencana partner $198m

Norwegian drilling contractor Seadrill ends its equity ownership in Malaysia's largest oil and gas company but remains a strategic partner.

Norwegian offshore deepwater drilling contractor Seadrill divested its entire stake in Malaysia’s SapuraKencana Petroleum on Wednesday, netting M$775 million ($198 million) through an accelerated bookbuild after the market close.

The transaction is the first internationally marketed block trade out of Malaysia so far this year, hinting at a revival in the relatively moribund market. According to Dealogic, equity capital markets deal volumes in Malaysia totaled $154 million in the first quarter, the lowest since 2010 and less than one seventh of the activity recorded in the same quarter last year.

The backdrop to the block trade was far from ideal. Although the benchmark Kuala Lumpur Composite Index of Malaysian shares has gained ground since hitting the 1,600 mark in late January, it traded back below 1,700 points on Tuesday following news of state investment company 1Malaysia Development’s default on a $1.75 billion dollar bond due 2022.

The block trade in SapuraKencana Petroleum shares should nonetheless have come as little surprise to equity investors since the deal has been sounded out to the market since early April, a source familiar with the situation told FinanceAsia.

Such sale was initiated by a different syndicate and it was unable to gather enough demand to eventually hit the market, despite being pitched with a much larger discount and a smaller deal size. That perhaps was due to the fact that the stock price was 7% above the current level at that time, which created price discrepancies between the sellers and potential buyers.

Global fluctuations in crude oil prices have swept away much interest in the oil and gas sector, but the fact that prices have rebounded significantly since early April have helped the deal. Brent crude has recovered more than 20% from $38 per barrel at the beginning of the month to around $46.5 per barrel in Asia late Wednesday.

SapuraKencana Petroleum, which engages in engineering and construction of oil and gas projects, is highly sensitive towards oil price fluctuations. Due to oil price weakness, the company recorded an impairment loss of M$2 billion last year.

Providing further security, the syndicate solicited anchor demand to ensure the order book was around 70% covered at launch, leaving approximately just $60 million for public subscription, the source familiar with the situation said, adding that a significant portion of the anchor demand originated from reverse enquiries.


Initial terms at deal launch were an offer of 490.3 million SapuraKencana Petroleum shares at between M$1.56 to M$1.66 per share, equating to a discount of 6.2% to 11.9% over the oil and gas company’s M$1.77 share price close on Wednesday.

That represents a fairly sizable chunk of the $2.7 billion company, equivalent to 8.2% of its outstanding capital and 56 times the stock’s average three-month volume of 14.5 million shares.

Final pricing was settled towards the bottom of the range at M$1.58, implying a final discount of 10.7% and raising $198 million for the Norwegian seller, which is controlled by local shipping tycoon John Fredriksen.

Demand was overwhelming with the order book closing multiple times oversubscribed. Majority of the orders came from local investors, including demand from soverign accounts such as Malaysia's pension fund. Allocations were made to about 60 accounts in the final book.

As such, it suggests the underlying interest in Malaysia equities at the right pricing remained unchallenged despite the current volatile markets.

This is the fourth time since 2012 that Seadrill has divested its holdings in SapuraKencana Petroleum, its Malaysian partner. The last deal was completed in 2014, when Seadrill offloaded $300 million-worth of shares.

The two companies remain in partnership on a number of projects, including the operation of their Brazilian shipping joint venture Sapura Navegação Marítima.

Morgan Stanley was sole bookrunner on the transaction while Maybank was a co-bookrunner responsible for local distribution.

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