Barefoot Investor: Proposal to merge SapuraCrest, Kencana

The merged SapuraCrest-Kencana entity is expected to have a market capitalisation of RM10 billion as well as some RM6 billion worth of assets.
Maybank Investment Bank Bhd (Maybank IB) and CIMB Investment Bank Bhd have joined forces to entice SapuraCrest Petroleum Bhd and Kencana Petroleum Bhd to merge and create the largest local oil and gas service provider by assets.

The merged entity is expected to have a market capitalisation of RM10 billion as well as some RM6 billion worth of assets.

A special purpose vehicle, Integral Key Sdn Bhd (IKSB), yesterday offered to acquire the assets and liabilities of SapuraCrest and Kencana Petroleum in exchange for cash and IKSB shares .

The cash portion for SapuraCrest is RM875 million or about 14.9 per cent of the deal, while for Kencana the cash portion is RM969 million or 16.2 per cent of the deal.

Under the proposed deal, Sapura-Crest and Kencana Petroleum will have equal share in IKSB, while IKSB will maintain the listing status of only one of the two companies.

The other will be delisted from the stock exchange.

The deal values SapuraCrest at RM5.87 billion, or RM4.60 a share, and Kencana Petroleum at RM5.98 billion, or RM3 a share.

SapuraCrest and Kencana's last traded prices prior to their suspension yesterday were RM4.49 and RM2.80 respectively.

"We believe the proposed merger is timely, in light of the investment cycle in the oil and gas sector, especially in exploration and production activities (upstream). Both SapuraCrest and Kencana Petroleum have commendable individual capabilities and competencies which are complementary across the value chain," Maybank IB's chief executive officer Tengku Datuk Zafrul Tengku Abdul Aziz said.

CIMB Investment executive director Datuk Charon Mokhzani and legal adviser Kadir Andri & Partners partner E. Sreesanthan were also present at the press conference.

For the deal to go through, 75 per cent of the shareholders of the two companies, respectively, must approve the offer.

SapuraCrest's major shareholder chief executive officer Datuk Shahril Shamsuddin and Kencana Petroleum's chief executive officer Datuk Mokhzani Mahathir have thus far expressed interest in the deal.

Shahril owns a direct and indirect stake of 40.1 per cent in SapuraCrest through Sapura Holdings Sdn Bhd, while Mokhzani holds a 32.4 per cent stake in Kencana through his interest in Khasera Baru Sdn Bhd.

Kencana, on its part, has appointed AmInvestment Bank Bhd as its adviser and Credit Suisse as its financial adviser. SapuraCrest, however, has yet to appoint an adviser.

Both parties were approached last Thursday with the proposal.

The board of SapuraCrest and Kencana Petroleum have 32 days to accept the offer before it lapses.

Should the offer obtain both boards' approval, the proposal by Maybank IB and CIMB Investment suggests the establishment of a merger integration committee to be co-chaired by principal shareholders, Shahril and Mokhzani.

The committee will work to iron out details of the merger before it is presented to shareholders for approval.(Business Times)


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