Malaysian government under scrutiny over Sapura Energy financial crisis

Malaysia’s Sapura Energy Bhd, a once respected oil and gas giant in Southeast Asia, has been struggling with a financial crisis necessitating far-reaching debt restructuring efforts. Once a dominant force in Malaysia’s oil and gas sector, the company has undergone degrees of government intervention, which itself has prompted scrutiny over its corporate governance.

Warning signs

Sapura Energy’s financial troubles surfaced in the late 2010s. Despite securing major contracts across various regions, the company struggled with mounting debt and project cost overruns. The company’s debt started ballooning due to aggressive expansion strategies that started in 2018, when it sought external financing to sustain operations, taking on multi-currency loans from various financial institutions.

By 2019, concerns over its ability to manage its obligations became evident, and the company ended up reporting losses due to operational inefficiencies and declining global oil prices.

Then, when COVID-19 all but shut down the planet, the company was dealt a death knell of sorts. As the pandemic hammered the global oil and gas sectors, Sapura Energy’s financial situation worsened, and the company faced increased difficulties executing projects due to supply chain disruptions, manpower shortages, and delayed payments from clients. Creditors became increasingly concerned as Sapura Energy defaulted on several obligations, further weakening its financial position.

Then, in early 2022, Sapura Energy’s auditors raised concerns about the company’s ability to continue as a going-concern. The company faced MYR10.73bn in total debt, comprising multi-currency financing obligations and outstanding trade creditor payments. As its financial woes deepened, Sapura Energy was classified under Practice Note 17 (PN17) by Bursa Malaysia, a designation for financially distressed companies.

In March 2022, Sapura Energy initiated negotiations with creditors, seeking debt restructuring options to avoid insolvency. The Malaysian government started assessing potential intervention strategies to prevent a major collapse that could disrupt the country’s oil and gas flow, MSN reported.

Calls for intervention

As Sapura Energy’s financial troubles continued, pressure mounted on the government to step in. Prime Minister Datuk Seri Anwar Ibrahim and other officials debated the merits of intervention, with critics warning against bailing out a mismanaged corporation.

In January 2023, auditors flagged significant risks to Sapura Energy’s financial sustainability. The company failed to meet some of its debt obligations, prompting renewed restructuring talks. The Malaysian Oil, Gas & Energy Services Council (MOGSC) and other industry groups voiced concerns that Sapura Energy’s collapse could disrupt thousands of SMEs and workers.

Sapura Energy meanwhile secured preliminary approvals from major creditors for a debt restructuring plan, pending formal agreements.

Debt restructuring, controversy

Sapura Energy then held 52 court-convened creditor meetings between February 21 and February 27, where its restructuring plan received overwhelming approval from financing institutions and trade creditors, The Star reported. The creditors, including multi-currency financiers and Malaysian trade vendors, approved the Composite Scheme of Arrangement (Schemes) under Section 366 of the Companies Act 2016.

Soon after that, Sapura Energy announced that preferred unsecured creditors would receive full cash settlements within 90 days of the restructuring effective date (RED), expected in August 2025.

The announced government bailout of MYR1.1bn from the Malaysia Development Holding Sdn Bhd (MDH) quickly triggered protests and speculations. Public and industry analysts debated whether the funding was a bailout or a necessary intervention to prevent a domino effect in the oil and gas industry. That debate is ongoing.

This then prompted the Malaysian government to announce that they were funding Sapura Energy’s debt settlement plan with strict conditions that the funds would only be used to pay local vendors. New Strait Times subsequently reported that Prime Minister Anwar Ibrahim defended the move, stating that it was a loan, not a bailout, and that previous shareholders and executives would not benefit.

Will Sapura Energy recover?

With the government-backed funding secured and a restructuring plan in place, the next challenge for Sapura Energy is executing its turnaround strategy. While analysts acknowledge that the fund injection provides breathing room, fundamental issues remain, such as debt that still hang over the company.

As Sapura Energy still carries billions in debt, and long-term financial stability is uncertain, critics argue that past mismanagement must be addressed to prevent future financial distress. The restructuring plan’s success will have significant consequences for Malaysia’s oil and gas ecosystem, affecting tens of thousands of workers and vendors.

If the company fails to implement sustainable reforms, this intervention may only delay an inevitable financial collapse.

However, if the restructuring is successful, Sapura Energy could emerge as a revitalised player in Malaysia’s energy sector. The coming months will be critical in determining whether this was a rescue mission or a case of throwing good money after bad.

As the August 2025 restructuring deadline approaches, all eyes will be on Sapura Energy’s ability to execute its recovery plan. If it succeeds, the company could set a precedent for corporate turnarounds in Malaysia’s energy sector. If it fails, it will serve as a cautionary tale of financial mismanagement and government intervention gone wrong.