SPACs walking on a tightrope

Only 2 SPACs or targeted acquisition firms had successfully acquired assets within the 3-year deadline from their listing


Special-purpose acquisition companies (SPACs) need to strike a balance between raising capital and securing assets at decent valuations to get off the ground.

To date, only two SPACs or targeted acquisition companies — Hibiscus Petroleum Bhd and Reach Energy Bhd — had successfully acquired assets within the three-year deadline from their listing.

Other SPACs have been less fortunate. Sona Petroleum Bhd was officially delisted in June last year, while Cliq Energy Bhd and Red Sena Bhd will soon follow suit after failing to complete their qualifying acquisition (QA).

Pheim Asset Management Sdn Bhd CEO Leong Hoe Kit said SPACs are caught in the dichotomy between the best time to raise capital from investors and to acquire assets at a good price.

“When the economy is riding high, this is the time when investors are willing to put in money into a business venture,” he told The Malaysian Reserve (TMR).

“However, during these times, asset prices tend to be high and it is not easy to acquire any assets cheaply,” Leong said.

Assets prices would plummet during an economic downturn; however, investors would also be reluctant to provide capital for riskier ventures such as SPACs.

“To be successful, the management of SPACs needs to have the capability to straddle the dichotomy,” he said.

“This calls for not only technical skills and experience in the intended business field of the particular SPAC, but to have a high level of investor relations savviness to convince investors to contribute capital towards the intended asset acquisitions,” he said.

He said SPACs could consider identifying a list of targeted asset acquisitions prior to listing to encourage investor participation.

“To make SPACs more attractive to investors, SPACs need to convince investors that they are not writing a blank cheque when they invest in SPACs.

“In this regard, maybe SPACs should already identify a specific list of initial targeted assets and be transparent with this list to potential SPAC investors right from inception,” Leong said.

He said this can help narrow the perception gap of investors who perceive SPACs as a “relatively riskier” investment vehicle compared to other instruments such as real estate investment trusts.

Hibiscus Petroleum (picture) was the first SPAC to be listed on Bursa Malaysia Securities Bhd back in July 2011. The company became a full-fledged oil and gas (O&G) exploration and production when it secured its QA a year later, namely a 35% stake in Lime Petroleum plc.

Four years later, Reach Energy joined its O&G peer when it acquired a stake in Kazakhstan’s Emir-Oil LLP, but other O&G-based SPACs were unsuccessful.

Sona Petroleum failed to secure a QA within three years of its July 30, 2013, listing in spite of raising some RM550 million from its initial public offering (IPO).

The now delisted company will be joined by Cliq Energy who is set to pay the RM6.12 million held in its trust account to shareholders at the end of the month.

Meanwhile, Red Sena cited deal uncertainty and unrealistic valuations behind its inability to complete its QA by the Dec 10 deadline last year. The would-be food and beverage company raised RM400 million from its IPO.

TMR reported this week that the outlook for SPACs in 2019 is bleak as structural issues continue to hinder the respective companies’ ability to secure a QA within the deadline.

Leong said the SPAC space in Malaysia is “quiet” due to the present overall cautious sentiment in the domestic and global markets.

SPACs are non-income-generating businesses that raise funds via an IPO to purchase a generating asset. To trade on Bursa Malaysia, these companies have to complete the QA within three years of its listing or IPO date or face de-listing.

Ninety percent of the IPO proceeds raised by the SPAC has to be put into an interest-bearing trust account, which dissenting shareholders are entitled to a portion of, if voting against the QA. At least 75% shareholders’ approval is required for the QA to go through.