SMJ Energy Sdn Bhd, no conflict of interest, state interest is paramount

SMJ Energy Sdn Bhd, no conflict of interest, state interest is paramount

The Ministry of Finance (MOF) unequivocally refutes any allegation questioning the legitimate basis for the acquisition by SMJ Energy Sdn Bhd(SMJE) of Sabah International Petroleum Sdn Bhd(SIP).

As a result of this State supported corporate exercise, SMJE had not only reduced the high interest costs of the legacy debts owed by SIP but had at the same time strategically recapitalised Sabah Development Bank Berhad (SD Bank) by virtue of the redemption of SIP’s debts owed to SD Bank.

There is absolutely no element of a conflict of interest in this corporate exercise when SMJE, SIP and SD Bank are all ultimately owned by the State Government of Sabah.

The State Government of Sabah as the owner of these GLCs must in any event be responsible for all historical debts.

The State Government of Sabah has been decisive in dealing with a difficult situation involving the historic financial problems of SIP and SD Bank. SMJE should therefore be commended for initiating the consolidation and restructuring exercise which benefits SMJE and the State financially.

Furthermore, any allegation that SMJE suffered a loss of RM7 million as a result of the Sukuk (Islamic Bond) issuance is baseless.

As a start-up company, SMJE had to incur pre-operating costs and expenses. These expenses have no relevance with the Sukuk issued by SMJE.

It should be noted that SMJE achieved the most competitive rates for the issuance of the first tranche of the sukuk of RM900 million which was 3.9 times over-subscribed, and described by The Edge as the most successful non-IPO fund raising in 2023.

In order to remove any doubt, the State Ministry of Finance emphasises the following key advantages of SMJE’s highly value accretive acquisition of SIP:-

1. The acquisition has added value to SMJE as a whole and at the same time enabled the consolidation of the oil and gas assets of the State under one corporate entity;

2. Petronas LNG 9 (PLNG9) declared cash payments of RM343 million in 2023 for the 10% equity stake owned by SIP. PLNG9 generates healthy annual dividends. Through the SIP acquisition, SMJE can expect approximately on average RM150 million annually in dividends for the next 13 years;

3. Strong and consistent cash flow from SIP’s floating production, storage and offloading facilities (FPSOs/FSOs). Since the acquisition, RM271 million has been channelled to SMJE to date; and

4. Reduced debt burden. One of SIP’s main challenges was the high interest debt of its legacy loans. SMJE successfully issued a Sukuk with a much lower interest rate.

This refinancing exercise to swap the debts from SIP’s higher interest loans to SMJE’s cheaper cost of funds has resulted in savings of over RM60 million in financing charges in 2023 alone and this will continue to save substantial interest charges in subsequent years.

Crucially, no additional debt at the State level was created. SMJE operates under strict governance. The board, chaired by YB Datuk Seri Panglima Masidi Manjun, is committed to transparency and accountability and is supported by very experienced independent directors from both the oil and gas and investment fields to ensure that SMJE is operated and managed professionally.

All decisions are made in the best interests of SMJE and the State of Sabah.

The acquisition of SIP has been a positive development for Sabah.

SMJE is now generating significant revenue through dividends, cash flow from existing operations, and reduced debt servicing costs. In 2023, SMJE generated substantial profits of RM217 million (unaudited) with an asset base of RM5 billion. SMJE also declared a RM50 million dividend to the State in 2023. This financial success allows Sabah to take greater control of its oil and gas future.




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