This wasn't just any company. It was once Malaysia's pride. In fact, it was the second largest company in the world to provide oil and gas.
services. Plus it owned these things. The world's largest fleet of tender rigs. At one point it operated in more than 20 countries.
Sephora Energy made its mark all around the world from Europe to South America to Africa. At its peak, it had tens of thousands of workers all over the world. With all this success, its top employees made millions and millions of dollars to the point where it made headlines everywhere. The Malaysian government themselves were some of the largest investors for this company.
But despite all this, cracks began to show and things came crashing down. hard. Sapura Energy is downsizing and slashing salaries because stake in financially troubled Sapura Energy. Why does Sapura need to be saved?
Today, Sapura's share price has fallen by not 30, not 50, but by over 90%. A collapse so shocking that most people still can't believe that it happened today. And some people still don't believe that it ever happened.
disbelief and they were clinging on to hope. They were overly ambitious. So I wanted to know where the heck did things go so wrong? And can subnormal energy ever return to its former glory?
Or is it over for them? Now to really understand what happened, we need to go back in time all the way back to the 70s. where six people were cramped into this one-room office, very different from what it would eventually become. Now, when asked what he should call his company, Abdul Qadil, the founder of the company, looked lovingly at his wife and said, Sapura, after his wife, Siti Sapura.
And although famous for oil and gas today, they actually started off in telecommunications. They worked hard and with each successful project, the small office grew crowded. Not just with people but with more bravery to take on bigger and bigger challenges. By the 1980s, there were now this huge telecommunication player but they had a problem. Every time they opened the newspaper, they got more and more worried because they couldn't help but notice how fast technology companies were being replaced at the time.
The cylinders were eventually replaced by flat recordings. Make all conventional disc and cassette systems obsolete, and it's called the compact disc. First it was CDs replacing cassettes, then it was video game consoles, and they knew that the clock was ticking and it wouldn't take long before they were next. And so they started brainstorming like crazy, mostly looking outside at companies to buy. This need to buy outside companies will eventually become a very very important pattern in this story.
But anyway, even though they kept looking outside, the answer would eventually be found from the inside all along. So a team of us, Yeah, team of us got together and said, actually, what kind of service in Malaysia that was underserved? This is Shahriu Shahmsuddin, or Shahh for short, the son of Abdul Qadil and the most important person in this story.
Because he noticed that there were hardly any oil service providers. It was kind of weird considering that Malaysia is an oil-rich country. But maybe it wasn't so weird.
Although it was seemingly obvious looking back. But oil and gas... is a very very capital intensive industry.
In other words, you need a lot of money just to get started. It's a very heavy capex with very long payback periods because you have to come out of the money, build up very very expensive vessels that would probably be used once or twice a year. This here is a drilling rig, a powerful machine used to dig deep holes into the ground to find oil or gas.
This one rig, now this is just one rig by the way, cost about 100 to 150 million US dollars. And you're not including costs like people and operations, well you get the point. They went out to buy the tender assisted rigs from C-Drill.
After that acquisition, they were the world's largest tender assisted rig. They had the largest fleet in the world. And even if you had a lot of money, you would need to have some very very strong convictions to actually exit telecommunications. and go into oil and gas in a very very big way. People were definitely thinking that they were kind of crazy.
Like who in their right minds would leave tech for an industry that they didn't fully understand? That's like leaving a steady desk job to go treasure hunting but for oil. This led to Shahh founding Sapura Crest in the 90s. From the start, Shahh noticed that it was a very old school industry. But whilst all of his competitors were thinking like old ways, Remember, Shah was from a tech background, so he saw things differently and he was about to shake things up in a big way He starts throwing in some serious tech into the mix Stuff like digital tools that help you find exactly where to drill without messing up.
To him, this isn't just about drilling better. Shahh made things more efficient and safer, cutting down costs and really pushing up productivity. In a short amount of time, he transformed Sephora Crest from a small niche player into a major player in the industry, outsmarting the competition that was still stuck in their old ways.
It's almost like he brought the smartphone to a sword fight. And by 2011, his life was about to change because of this person. Mokzanizani Mahathir. Mokzanizani, the second son of former Prime Minister Tun Dr Mahathir Mohamad, is one of the founders of Kenchana. Not only was he the son of the longer-serving ex-Prime Minister of the country, but he was also the founder of Kenchana Petroleum.
The two men were very similar in many ways. Both men were the same age, both came from wealthy backgrounds, and both of them founded top... oil and gas companies in Malaysia.
They were just too similar to ignore each other and too different to tolerate each other, especially because both companies were competing in very very similar markets. And they were often fighting each other for the same contracts. Suppler would get reports about new job for fabrication or whatever. And they always hear the following line Now both Xiao and Mokzanizani could continue being rivals, but what if they started working together? Now, it was a crazy idea because who in their right minds would marry their enemy?
Much less work together with them. But the more they thought about it, the more it made sense. And sense. Get it? Nevermind.
This... merger was going to be big. In fact, it was the largest merger that Malaysia had ever seen at the time for the oil and gas industry.
So the two men went back and forth negotiating every little detail that you can think about. The investors of both companies were on their toes because nobody knew for sure if it was going to happen and if it happened, well, everyone was about to get much, much richer. One month passed, nothing happened.
Six months passed, nothing happened. And after about a year, nobody really cared anymore. Maybe it wasn't going to happen. Maybe it was just a rumor. And then it happened.
Subrocon China officially becomes the country's largest oil and gas service company in May 2012, funded by a $5.5 billion billion dollar loan from some of the top banks in the country making it top five not just in Malaysia but in the world and realizing that by leaning on each other standing on one common platform we can become a formidable company not just in Malaysia but worldwide something unexpected also happened around the same time The industry as a whole was booming out of nowhere. It turns out that oil prices were about to hit an all-time high. In 2008, a barrel of oil was around 40 US dollars and by 2012, a barrel of oil was around 130 US dollars. That's a freaking three times increase.
This changed everything. The shares of Sapura Kenchana have risen. Its shares are up to its highest.
Sapura Kenchana Petroleum's net profit increased by 8.6%. Sapura's share price skyrocketed. It went from $2 before the merger in 2012 to $3, $4, and it just kept going.
This made Shahh rich. He's now a billionaire, $4.5 billion to be exact. And he was number 12 on the Forbes rich list. It made Shahh feel like he was unstoppable.
It made him feel like he was the guy. In his mind, Sapura wasn't just going to become a household name in Malaysia. Sapura, it was going to become a household name around the world. So Shahh tripled down. Whilst different companies offered different services, he wanted Sapura to do it all.
He started going on a shopping spree. And they had an opportunity to buy a fabrication yard. So when they bought the fabrication yard, then they said, hey, why don't we do the whole value chain? Why don't we be a third key solution provider all the way till drilling wells? And that was the intent of what Sephora was trying to do.
So what they were trying to achieve, was in a way be this one-stop shop. So they rebranded themselves into Sapura Energy to reflect that. He buys cereal for $3 billion, then new fuel for about a billion dollars, and he just kept shopping. He was on top of the world. It felt like he was untouchable.
I mean, wouldn't you? And maybe it's around this time that we should be more careful because confidence is a good thing, but overconfidence, well, that's another story. At what point do you think that the cracks started to show for Sephora? Mokzanizani left.
Mokzanizani came to the office. What happened was he sold every single share of Sephora that had been sold. Now, not only did Mokzani Zani left, but so did other top Kenchana management members.
share prices started to bleed. Well, when asked why, Mokzanizany simply said that it was a private matter. It really got me thinking.
Why? Especially since he fought so hard to pitch the public about the merger. So I dug deep. I read everything that I could find, articles, annual reports. Now I'm speculating and I'm just speculating over here.
That is probably because of this. Now, if you look closely, you'll notice a sudden jump in none other than Dapp. In 2012, the net debt was about $2 billion, by 2013 it was $7 billion, and by 2014 $11 billion, and by 2015 when Mokzanizani started to sell his shares, the debt was about $16 freaking billion. The headline news, wow, Sephora is growing bigger, oh they're buying this, they're buying that right, oh they're securing contracts here. Remember all the shopping that Shahh did earlier?
It was all funded by loans from banks in Malaysia. Now it's not too big of a deal because they're using the money to expand The company right? And it was a good idea since oil prices were at an all-time high right? But what if oil prices were never that stable to begin with?
And what if oil prices actually fell? Oil prices dropped WTI crude is down 24% The crude oil prices must have their value Jia the market started its latest downturn In 2014 almost out of nowhere oil prices started to fall and they fell hard. It went from $130 per barrel to just $60 per barrel. The markets, they freaked out. Sephora's share price dropped like hell, dropping about 50% from about 5 ringgit to 2.2 ringgit, a 60% drop in a year.
Now this all happened because of Saudi Arabia. The Saudis believe $60 a barrel is acceptable for the oil market and in that they're taking an immense political gamble. More specifically, Saudi Arabia and a few of the other top oil producing countries coming together as OPEC.
Before 2008, these few countries supplied around 60 to 70% of the oil in the world. But by 2014, these numbers have started to drop by a lot. This is all because of new competitors, especially the ones coming from the US So what they did to fight off new competition was to keep producing more oil Even though oil prices were dropping.
You're probably thinking why would they do that? Wouldn't that just drop prices even more? Well, for them, it was all about keeping their share of the market and kicking out the new guys. Because they knew that the new guys needed much higher oil prices to make a profit.
Because they needed to use more expensive equipments to get the same amount of oil as the OPEC countries do. So what that means is that it's okay if I don't make much money now, as long as I kill my competitors. Okay, so OPEC caused the drop in the oil prices. Fine.
But I'm still confused about something here. Because looking back at the data, traditionally, oil prices have been quite a cyclical business. Very big, high capex, very high revenue.
Then the cycle goes downhill. And what that means is that there will be times of big jumps in prices, followed by big drops in prices. And it's a pattern that keeps repeating itself. So it got me thinking, why would Sapura take risks like that if they understood that oil and gas was a cyclical business? I don't know what this thing does.
They probably thought that high oil prices would be sustainable. They were very ambitious. They wanted to say, hey, I want to be that one-stop shop. You know, everyone's spending money, all the oil majors are spending money. When you are caught up in the moment and when it's like so easy to do deals and then your finances are like, hey, just take my money, you know?
Right. You fall into this riskless or maybe a little bit more carefree kind of mode. But despite all of this, Shahh was still confident that things will be okay. I think our finances will remain volatile and our company long term is positive.
So confident that he raised his salary from 5 million ringgit to 83.4 million ringgit a year. To really show you how crazy that is, at that point in time, Maybank, the nation's largest bank, was the largest company in Malaysia. And it was valued at three times the price of Sapura Energy. And they were only paying their CEO 10 million a year. A lot of people thought it was insane.
Some even thought that it was just a joke. When asked Shahh why he was taking such a big salary, Shahh's team basically said that it looks like it's a lot, but it's actually not a lot when you benchmark it to an international standard, as they plan on making Sephora into a global company. If that's the case, they better start paying their CEO a global salary as well.
At this point, you're probably thinking like, what? I thought so too. But I really wanted to know, where is this confidence coming from? It turns out that it was actually hidden in almost every single interview that I watched of him.
And maybe it wasn't as bad as it seems. Why I focus so much on the failure of businesses is so that you guys can learn from these mistakes and avoid failing yourself. Another thing that you can learn to avoid is danger online. This is where today's sponsor steps in. Thank you NordvpnVPN for sponsoring today's video.
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And thank you NordvpnVPN once again for supporting the channel. Sephora Conchana today has an order book of about $26 billion. The same thing you asked me, with an $18 billion order book, what can go wrong? We replenished our order book, let me say about $6 billion this year.
They kept on talking about order book, everything was about order book. Look, we've replenished our order book, we're gonna get this kind of revenue. The order book is basically the total value of a project orders that you get.
Kind of like a restaurant with a long list of uncooked food orders from their customers. It's probably why Shahh was still so confident because it turns out that around 2014, Sephora's order book was at 30 billion ringgit, a huge amount. By 2015 however, it was down to 25.1 billion and by 2016, 21.3 billion.
Despite this, Shahh was still hopeful that oil prices would eventually go back up again. In fact, by 2018, he was still confident that he could turn things around, even though Stapura's share prices have dropped to only 40 cents at this point. From what he says, they'll turn profitable in 2020. So they must be doing something.
I don't know many Ceo who will put their neck on the line and say that. The public was divided at this point, and rightfully so. I mean, who knows what was going to happen?
Many stock analysts still thought that it was a good buy but some were starting to become more careful with the stock. It's either you believe in him or you don't. So when I asked him also the same thing you asked me with an 18 billion order book what can go wrong?
It's unlikely they'll make a mistake like that. But despite all this something really doesn't add up. Despite large order book numbers, the company was still bleeding money like crazy. But why?
It turns out that just because you can get an order doesn't mean that you can properly deliver and steer. you make money. If you can't cook the food that the customer has ordered, you simply don't get paid.
Also, remember the shopping that Shahh did? The debt had gone up so much that all profits that the company was making was now being used to pay off the debt. Shahh had no choice but to sell profitable parts of the company, making it harder for them to fulfill their order books. In other words, How can you cook if you sold your kitchen?
Things were not looking good. The poor performance alongside Bitsha's RM200,000 a day paycheck made some of Sapura's investors very very angry. So angry that they tried to kick Shahh out from the very Sapura that was named after his own mother.
He was in trouble. He frantically calls all of his board members. He tries to make sure that everyone was still on the same page.
He couldn't take any chance. He wasn't going to get kicked out. No, not now, not yet. On the 18th of July 2018, Shahh gets a call.
His heart skips a beat. He accepts his fate and was ready for whatever was about to come. He was safe.
82% of the bot voted for him. He breathes a sigh of relief but at this point, Shah was battling a mounting debt, dropping earnings and a bot that was constantly bearing down his neck. He was burned out after 20 years of non-stop firefighting. Maybe it was about time for someone new to take over.
And vacation actually doesn't sound too bad right now. But who in the world would agree to become the captain of this sinking ship? And more importantly, can he or she even turn this around?
Sapura was dying. Many people lost their jobs. And even more people lost a lot of money because of Sapura.
If there's going to be a change, it's now... or never. The oil sector is very strategic. The oil sector has 60,000 employees.
Start with a forensic audit! The issue had gotten so big that even the government was debating on whether Sephora should be safe or not. But Malaysia doesn't really have a good track record when it comes to bailouts.
But there was hope. Because one good thing about being in the industry for about 20 years time is that you basically know everyone and that means you have the ability to set up the best team for oil and gas in malaysia so sha started making some calls enter anwar taib the new ceo of sapura Will Anwar be able to return Sapura Energy to its previous glory? But we must think about what's the purpose of this industry.
The first thing that he did, changed the whole board with some celebrity-like superstars in the Oil and gas industry. It's almost like the Avengers but for oil and gas. He immediately jumps into action and sets up what I call operation 3R with the first R being renegotiate. Anwar look at the huge pile of dabs on the sufferers books and say let's settle this. This wasn't just about moving numbers around, it was about making smart deals with their bankers.
Maybe getting some better interest rates or even pushing out some deadlines to give the company just a little bit more time and a little bit more room to breathe. It's almost like refinancing a 10 billion dollar house when the rates are just a little bit better. Second R stands for reduce, especially their costs. This is where Anwar turned into a cost-cutting ninja. He scanned through every single expense and started chopping.
Not randomly though, he was strategic. Cutting costs that didn't bring value and closing some operations. He needed to make sure that every single dollar spent is a dollar that works hard for the company. It's not just about spending less, it's about spending smart. The last RL stands for refocus.
You see, during Shah's time, it was good to have a CEO that really tried to expand to everything. But Sapura is no longer in the same stage that it used to be in anymore. Now is the time to double down on things that work, and cut out things that don't.
It's about making sure that Sapura isn't just a player, but the leader in what they do best. As things started to change, you could feel the shift at Sapura. There was a new energy, a mix of hope and excitement.
Employees were pumped. Office guards started waving harder and even the coffee started to smell stronger. ShahreList was starting to change their mind even if just like a little bit.
Was this actually going to work? Could this really be the turnaround that everyone was hoping for? Well fast forward to 2024, three years after the plan, a quick search on the internet and a few things immediately popped up at me.
It says here that they managed to achieve some deals here and there and it looks like they also got a few awards so that's pretty cool. But when you dig just a little deeper, you'll see that the same pattern seems to be repeating again. Sephora Energy is disposing of its entire 50% stake in Sephora OMV Upstream. They are still selling parts of their company. They're still not doing that well for some of the projects that they had planned.
Announce that its Mexican unit has been declared bankrupt. And... They're still unfortunately in a lot of debt. How long before they have to dig themselves out of the hole? How do you unwind those decisions that were made that had serious financial repercussions to this?
Basically, they are very much still in the red. The share price has also dropped to the lowest that it has ever seen. Five cents when it used to be five ringgit. Its order book which used to be 30 billion is now only about 5 billion.
But I couldn't understand the plan seemed so perfect. It sounded really really good Why is this still happening? So I had to do what I always do for you guys read all Of the reports. Okay, so here's what I got.
The plan was actually really really good on paper. But although you can control yourself, it's really hard to control what might happen to you. Basically, a major government-linked investment company, PNB, promised that they were going to inject 6 billion ringgit into the company.
That was basically all they needed to remove its debts and money survived again. But something super unexpected happened. A replacement to a new government, which by the way, has never ever happened since the independence of Malaysia in the last 60 years basically caused them to only inject about 50% of the promised money.
Interestingly, Shahh himself actually added about 500 million ringgit or about 10% of the money but it really wasn't enough. So when they tried to get the rest of the money which is about 40% of the money that they need, they had no choice but to turn to banks. Banks, after seeing Sephora being in the same debt after so many years, still lend them money but give them conditions so tight that it was basically useless to them. And the story only gets worse from here.
Covid-19 became such a big slap to the face for Sephora that it made the company lose around 9 billion ringgit in 2022 itself, leading to calls for another rescue plan. Which brings us to what we're seeing today. Sephora is a shell of is for myself. You'll be able to tell your grand...
...and children that you've been part of a great company that's gonna last for centuries. Can you imagine from the darling, part of the index, and then today, it's where it is. Although things are looking kind of bad, Anwar Taib, the CEO, still thinks that there's a chance that they can turn this thing around. Shaho, on the other hand, has semi-retired. He was last seen in public in a Sephora event where he was hyped up like a rock star.
And he gave a speech on Sephora Group's 50th year anniversary. Unfortunately, he's no longer one of the richest people in the country anymore, but I have a feeling that he's still doing pretty okay. Definitely way richer than me, I'll give you that. Mokzanizani on the other hand made like 600 million ringgit from his sale of the Sephora shares, and he's currently on the board of Maxis, one of the largest companies in the country.
And his buyer says that he's a big sports car guy and apparently he owns a Bugatti, one of the most expensive cars in the world. As whether Sephora Energy will go up or down from here, who knows? But every time I think about this company, I can't help but wonder how things would have changed if just a few of those decisions were changed. But that's the thing about life, right?
You can't turn back time, but what you can do is to tell the future builders Or you guys what not to do the next time that this happens And maybe, just maybe, one of you guys are going to build the next giant company And you'll remember this video If you like the story, I think that this video will be a great video for you