This article first appeared in The Edge Malaysia Weekly, on March 14 - 18, 2016.

The concept of a special purpose acquisition company (SPAC) was introduced into the local capital market by Securities Commission Malaysia (SC) back in 2009. Two years later, Hibiscus Petroleum Bhd became the first SPAC to be listed on Bursa Malaysia.

Hibiscus made its qualifying acquisition (QA) in February 2012, acquiring 35% equity interest in Lime Petroleum plc for a total consideration of US$55 million. The acquisition gives Hibiscus concession rights to three offshore oil and gas (O&G) exploration assets in the United Arab Emirates and Oman.

Hibiscus’ successful QA may have encouraged other SPAC listings. In 2013, CLIQ Energy Bhd and Sona Petroleum Bhd were listed on Bursa, followed by Reach Energy Bhd in 2014. Last year, Red Sena Bhd became the first food and beverage SPAC listed on the local bourse.

However, so far, only Hibiscus has regularised its business and become an independent O&G exploration and production company. The other three O&G SPACs, while having identified assets to be acquired, are still in different stages of getting regulatory and shareholders’ approvals.

Sona’s QA proposal has been approved by the SC while CLIQ’s was shot down due to insufficient information provided on the assets. Reach Energy has just announced that it had identified an asset to be acquired.

All eyes will now be on Sona’s extraordinary general meeting on March 30, to see how its shareholders will vote on the proposed acquisition. At the same time, investors would want to know how long it would take to liquidate CLIQ.

On July 21, 2014, Sona announced that it had entered into a sales and purchase agreement (SPA) with Salamander Energy plc for the acquisition of a 40% stake in Salamander Energy (Bualuang) Ltd for US$281.2 million. However, the acquisition was aborted as Salamander had received a takeover offer from Ophir Energy plc in November 2014.

Undeterred by the failed bid, last November, Sona announced that it was planning to buy the Stag oilfield in offshore Western Australia from Santos Ltd and Quadrant Energy Ltd for US$50 million.

The SC approved the proposal on Feb 12, despite noting that the price was not fair, following the rapid fall in crude oil prices. Between November 2015 and last month, crude oil prices had dropped more than 25%.

On Feb 29, Sona announced that the acquisition price has been reduced to US$25 million after it renegotiated with the vendors.

Sona could well become the second SPAC to transition into an independent O&G outfit, if its shareholders are convinced by the management’s assertion that the investment in the Stag oilfield would be beneficial in the long term.

On the other hand, CLIQ is getting liquidated as it has failed to obtain the SC’s nod for a proposed acquisition in Kazakhstan. CLIQ had proposed to acquire a 51% stake in two oilfields in March last year from Phystech Firm LLP for US$117.3 million. The proposed QA was made about two years after CLIQ was listed.

However, due to the rapid depreciation of the ringgit against the US dollar, the SPAC found itself short of funds to carry out the acquisition. It had planned to raise RM210 million through a rights issue with warrants to bridge the shortfall.

The company also had to amend the SPA with Phystech four times, with the final amendment carrying a reduced purchase price of US$110 million. However, CLIQ’s application was rejected by the SC on Jan 29.

CLIQ is now looking for a liquidator and it will eventually return the shareholders’ funds set aside in its trust account. The amount is 73 sen per share. An industry player says liquidation of an SPAC is similar to that of any company, which could take six months to two years.

On March 4, Reach Energy announced that it has entered into a tripartite conditional SPA with Palaeontol Cooperatief UA and MIE Holdings Corp for the acquisition of 60% equity interest in Emir-Oil LLP for US$154.9 million.

Reach Energy may be at an advantage as it would now have seen the challenges Sona and CLIQ faced in getting the SC and shareholders to approve their proposed QAs. Developments at Sona and CLIQ will serve to set the precedent for other potential SPACs in the future.

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