Friday, July 8, 2011

Hibiscus Petroleum Berhad - To Apply or Not To Apply?

Hibiscus Petroleum Bhd, the first Special Purpose Acquisition Company (SPAC) to be listed in Main Market on 25th July 2011. This is something quite new in the Malaysian share market. If we really examine and we surf few of the blogger involve in share market, most of them responded saying that they are not going to apply this share. The main reason was this company have NO BUSINESSES and it is an EMPTY SHELL company.

Basically if we sit down and examine the prospectus of this company, it seems that this company have the ability to move higher on the ground that it will involve in an OIL and GAS exploration and production (E&P) businesses. No doubt they don't have any businesses at all at this moment but the team management inside it was well known for their ability and experience in oil and gas field.

Taking into the account of their Main Features of this IPO - certain things we need to look at it on why this share was worth of applying based on their few main features.

SPAC is a company which has no operations or income generating business at the point of IPO but undertakes an IPO with the intention of acquiring operating companies/businesses with the proceeds raised from the IPO.

The Initial Public Offering (IPO) consists of 200 to 400 million ordinary shares at an IPO price of RM0.75 per share at RM0.01 par value. It comes with 1 free detachable warrant for each share. 10 million shares are offered to Malaysian public.

The warrants will be listed and tradable from the date of listing, with an exercise price at a discount of approximately 33% to the issue price of RM0.75 per share. Upon the listing, Hibiscus Petroleum will work towards the acquisition of businesses or assets that would establish it as a junior independent oil and gas exploration and production (E&P) player in the near to medium term.

Hibiscus Petroleum does not intend to pay dividends prior to the completion of the Qualifying Acquisition (QA). The company has not generated any revenue since it has not commenced business operations.

Main features of this IPO?

1. Investor Protection – At least 90% of the IPO proceeds will be placed in a trust account managed by an independent custodian which is a trust company, a licensed bank or merchant bank. At least 90% IPO proceeds placed in a trust account - given it value at 0.75 sens X 90%, we still have a value of 0.675 sens place under trustee. The minimum proceeds of 90% will be placed with the independent custodian, Deutsche Trustees Malaysia Berhad which may only be invested in securities issued by the Malaysian Government, money market instruments and AAA-rated papers.

2. Shareholders who vote against a proposed Qualifying Acquisition (QA) are entitled to receive, in exchange for their securities, a pro rata portion of the amount held in trust account (being 90% of the IPO proceeds) if the QA is approved. Hence, the downside risk prior to Qualifying Acquisition (QA) is limited with the refund flexibility of 90% of an investor’s IPO subscription plus interest (net of distribution/liquidation expenses). The downside risk is limited with a refund of 90% plus interest - a good protection. If the Qualifying Acquisition approved by the share holders, we have the rights to ask for the refund if we are against it. It means that at least we will be still getting 90% of its initial value of 0.75 sens.

3. The downside risk may be further mitigated by the trading of warrants from the date of listing as this IPO comes with a sweeter of 1 free detachable warrant for each share. This is the best part of it - Free 1 detachable warrant. Exercise period - Anytime during the period commencing from and inclusive of the date of the completion of the QA up to and including the Expiry Date.

4. The warrants are tradable on listing date. Exercise price is 0.50 sens – a discount of 33% to the issue price of 0.75 sens.
Taking into accounts - if the listing of Hibiscus share was below par around 90% (0.675 sens) from its initial value of 0.75 sens, the warrant will probably listed at around 0.25 to 0.35 sens a share - this was based on it exercise price of 0.50 sens plus a premium of about 0.10 to 0.15 sens a share for the warrant. (listing price 0.675 sens - exercise price(warrant) 0.50 sens = warrant share prices 0.175 sens + premium of 0.10 sens to 0.15 sens = probably listed around 0.25 to 0.35 sens a share.

5. The completion of the QA is within 3 years from the date of listing. If it fails to complete a QA within this time frame, the company will be liquidated and the amount held in trust account (net of taxes and liquidation expenses) will be distributed to shareholders.
Refund flexibility : Investors will receive 90% of their funds with interest, (after deduction of relevant taxes and liquidation/distribution costs which are not expected to be substantial), if the SPAC fails to generate an acquisition within a 3 years period or if they vote against an approved qualifying acquisition. The Non-Independent Directors, Management and Initial investors are not entitled to any distribution. No other IPO structure limits investors’ initial downside in this manner.

Investment by Investor (per share) RM0.75
Minimum amount to be distributed (90%) RM0.67 *
Interest in Year 1 (3%) RM0.02
Total distribution – if at the end of Year 1 RM0.69
Interest in Year 2 (3%) RM0.02
Total distribution – if at the end of Year 2 RM0.71
Interest in Year 3 (3%) RM0.02
Total distribution – if at the end of Year 3 RM0.73

6. Opportunity to invest in a listed oil and gas Exploration & Production company at entry price.
Under the SC guidelines, they are not allowed to talk to any vendors prior to being listed but after listing if there is some good announcements coming in the prices of this share will be totally different)

7. Board and Management team have extensive experience and relevant skills.

1) Former Shell Malaysia deputy chairman Zainul Rahim Mohd Zain is the non-independent non-executive chairman of Hibiscus Petroleum. He is also the Board Members of Petronas Carigali Sdn Bhd and Petronas Carigali Overseas Sdn. Bhd.
2) Former Sapura Crest Chief Operating Officer, Kenneth Gerard Pereira is the managing director. Pereira was in the Sapura group's oil and gas service business. He is also now the managing director of Mumbai-listed Interlink Petroleum Bhd, an independent oil and gas E&P company. He has 29 years of working experience of which 21 years have been in the oil and gas industry. Significant prior sector experience in the start-up and turn-around of companies engaged in the sector :- One of the founders of the oil and gas service business of the Sapura Group of companies in 1997, involved in the growing of the company organically and through acquisitions until 2008. Interlink Petroleum Ltd, a junior independent oil and gas E&P company listed on the Mumbai Stock Exchange. Under his stewardship, Interlink’s performance improved substantially, with a market capitalization increase from approximately USD3.7 million at the end of 2008 to USD35.5 million at the end of 2010.
3) Perisai Petroleum Teknologi Bhd’s managing director Zainol Izzet Mohamed Ishak who was former Sapura Crest Petroleum Bhd CEO also sits on Hibiscus Petroleum’s board. Held a CEO position for 16 years, out of which, 7 were in Malaysian public listed companies. Under his leadership, Sapura Crest became one of Malaysia’s leading oil and gas service provider.
4) Dr Rabi Bastia Padmashree (non Executive) - Involved in the oil and gas E&P industry for more than 30 years. Founder of the E&P business of Reliance Industries Limited, a member of the Reliance Group, India’s largest private sector enterprise. Credited with the successful exploration of India’s largest oil basins, many of them in deep water. Received several academic and state awards in India, the UK and the USA.

From my point of views. The risk is there but it would not be a great risk as most of the money invest are place in a trustee account and we have the rights not to proceed or to be a shareholder if the Qualifying Acquisition is approve and we are against it. At least we still receive 90% refund. Do remember we have another one sweetener - 1 free warrant for every ordinary share we hold in Hibiscus Petroleum Berhad. From here anything can happen with the warrant listing. Maybe it might move higher? There are few rumours stating that this share will be play once it listed in Bursa. How true is this story ????? No idea at all. Just make your own judgement.....

This statement was not an intention to ask or to persuade any of my readers to apply for this coming IPOs. It is just my point of views only.

"Sometimes when thing looks bad it turn out to be good or vice verse"


Jackie Lee said...

I think it is a good bet with limited downside and an extra 1 free warrant.

Anyway there always a risk involve.

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