This article first appeared in The Edge Financial Daily, on March 4, 2016.

KUALA LUMPUR: The liquidation of special purpose acquisition company (SPAC) CLIQ Energy Bhd, and the continued losses suffered by the one and only SPAC-turned-listed company, Hibiscus Petroleum Bhd, have recently turned the spotlight on SPACs and whether they have lost their viability.

One SPAC expert thinks they have not.

“For Hibiscus, we must remember it’s no longer a SPAC, so whether it does well or not, it’s as a listed company. As to the reason why there’s no successful SPAC, its the same reason why there’s no successful shale companies today — the market turned on them.

“I think it’s the O&G (oil and gas) sector that has lost its viability. Unfortunately, Malaysian SPACs — which have matured or are near maturing — are all in oil and gas,” he added.

Having said that, he noted that the United States just saw an O&G-focused SPAC, Silver Run Acquisition Corp, completing its listing with some US$450 million (RM1.86 billion) proceeds raised — the largest initial public offering (IPO) the US has seen in the year to date. The SPAC, he observed, is run by industry veteran Mark Papa, “who is known to thrive in volatility”.

Still, given CLIQ’s liquidation, and weaker sentiment, an investment manager told The Edge Financial Daily that applications for SPACs here, going forward, would slow down.

“Investment bankers will do what the market wants. If there doesn’t seem to be strong demand, they won’t do it,” he said.

Certainly, CLIQ’s liquidation after failing to secure more time to complete its qualifying acquisition (QA) due to incomplete information submission, has left a sour note among investors towards SPACs.

“It would make investors more cautious because they’ll have to decide whether these are the people they want to go with and get their money tied up with,” said the SPAC expert.

But if CLIQ liquidates properly, it’ll give investors a very strong sense of comfort that their money is not being siphoned off and is protected, he said.

“It’ll also make advisers think again, whether or not they should come to market. Because now investors will be a lot more discerning. They will know that not every SPAC will complete a QA,” he added.

He also opined that it is not necessarily a bad thing for CLIQ shareholders that the SPAC is being liquidated. “I would rather the SPAC liquidate than force an acquisition through because studies have shown, in the US, SPACs that rush a QA through because they’re about to die actually cause a lot of damage to shareholders,” he said.

Further, a QA does not a “happily-ever-after” make. After all, the real challenge only starts after a SPAC graduates to become a full-fledged company with an actual business, as can be seen in the case of Hibiscus, the first SPAC to complete its QA in 2012, but which has yet to turn a profit.

Its share price has also since been decimated. Priced at RM2.12 on Jan 17, 2014, its share price has since fallen 91% to trade at between 18 sen and 19 sen — lower than even its IPO price of 75 sen — as oil prices collapse.

In its latest quarter ended Dec 31, 2015 (2QFY16), Hibiscus announced its net loss widened to RM164.17 million from RM10.66 million a year ago, due to a RM85.4 million impairment on the carrying value of its VIC/P57 exploration permit in the Bass Strait in Australia after no zones of commercial hydrocarbons were encountered in the Sea Lion-1 well. Some RM56 million in losses were also attributed to the purported dilution of its investment in the Lime Group.

Hibiscus is now banking on its latest purchase of a 50% stake in the Anasuria Cluster, located off the east coast of Scotland in the North Sea, to generate steady revenue.

CLIQ, the second SPAC listed in Malaysia, announced last week it was in the midst of resolving its liquidation and returning monies in its trust account — which stood at RM355.72 million as at Feb 12, 2016 — to shareholders. Industry observers said this could take at least eight to nine months.

There is no specific SPAC rule in Malaysia that determines when the money would be returned, unlike in, for example, Johannesburg, South Africa, where the SPAC regulations state that the money must be distributed back within 60 days after the deadline if the shell company fails to secure its QA. Hence, the applicable rules on the liquidation of companies would have to apply here.

Sources familiar with the matter, however, told The Edge Financial Daily that the management of CLIQ is still looking at ways to obtain more time to make its QA. CLIQ has, in a bourse filing on Tuesday in relation to news of such an appeal, said it is in the midst of resolving its liquidation and returning monies in the trust account to shareholders.

Interestingly, it did not expressly confirm or deny if it was making an appeal to the regulators.