Hibiscus seeks high-quality assets in SE Asia

The company intends to raise RM2b from a proposed private placement of CRPS to fund the purchase

by SHAZNI ONG / pic by TMR FILE

HIBISCUS Petroleum Bhd is looking at acquiring up to three mature, producing assets located in SouthEast Asia (SEA) as the oil and gas (O&G) exploration and production company seeks to adapt to the challenging operating environment.

The company intends to raise RM2 billion from a proposed private placement of convertible redeemable preference shares (CRPS) to fund the purchase of good-value, high-quality brownfield assets.

“The current Covid-19 pandemic has caused a degree of demand destruction for crude oil with oil prices having consequently softened. Many oil majors are also pivoting towards greener sources of energy as they review their portfolios, which present an opportunity for Hibiscus to acquire highquality producing assets at good valuations in some of the areas of our geographic interest,” its MD Dr Kenneth Pereira (picture) told The Malaysian Reserve last Friday.

The company stated that the proposed private placement is the most appropriate mechanism to raise funds upfront to optimise its chances of acquiring attractive assets, particularly those sold via bidding rounds with tight timelines for completion.

“The scale of the assets that we are bidding for is material. We believe the purchase consideration will require equity and debt. The placement related to the CRPS instrument will represent the equity component.

“The conversion feature of the CRPS instrument also ensures that we create new equity in Hibiscus only if we secure an acquisition,” Pereira added.

While this is a placement exercise of CRPS, Pereira said Hibiscus would like as many qualified investors who are currently part of its shareholder base to participate in the exercise.

“We have provided multiple safeguards to protect their investment and the funds will be used especially for acquisition(s) which should see Hibiscus grow to much more relevant size.

“Subject to shareholder approval, management would also like to invest in the CRPS placement on the same terms as all the other investors,” he said.

Pereira noted that Hibiscus is working with several banks for a debt component to support any transaction it executes.

“We are a conservative company when it comes to gearing. Thus, we feel a reasonable amount of equity needs to underpin debt and the CRPS provides that flexibility,” Pereira said.

For financial year 2020 (FY20), Hibiscus reported Ebitda of RM213.3 million and a loss after taxation of RM49.3 million on the back of provisions for the impairment of O&G assets amounting to RM196.3 million. This indicated a relatively strong full-year Ebitda despite challenging market conditions.

The company has a presence in Malaysia, the UK and Australia. “We have a reasonable amount of human capital in the UK and Malaysia, and these strong operational teams provide a platform for us to upscale our current business model in the O&G sector in these geographies.

“Our current business model is to acquire producing assets and to enhance their value. We have done so twice before; once in the UK with the Anasuria Cluster and on another occasion in Malaysia, with our interests in North Sabah.

“We know how to make this business model work, and now we see opportunities to repeat the same process, but on a larger scale,” he said.

On renewables, Pereira said there is a big chase for these assets and licences at the moment, but after having studied several opportunities, the company did not find the returns very attractive.

Thus, the company prefers to stay close to its core business, but with a sincere and serious focus on reducing the carbon footprint related to the production of O&G.

“In the UK, we are committing to the ‘net-zero’ initiatives being driven by the British government. We believe O&G will continue to play a role in the energy mix of many nations, and we believe a net-zero agenda is the way to go,” he said.

Net-zero refers to the balance between the amount of greenhouse gas produced and the amount removed from the atmosphere, he explained.

Pereira said Hibiscus’ business performance is most sensitive to crude oil price and demand. He expects economies and crude oil price to recover gradually.

What is important is the ability to survive through this period of uncertainty, he added.

In this regard, Hibiscus has little or no debt, a low operating cost structure and a dedicated workforce determined to keep operations going for a product that has a market, albeit at a softer price.

“I do see recovery for the global economy, which would also mean the O&G sector will recover. I believe this recovery will take place in the second half of 2021,” he said.

In the area of capital expenditure, Pereira said Hibiscus is reviewing the projects it wishes to undertake in 2021.

“It is an ideal time to do capital projects as most oilfield service contractors are maintaining competitive pricing for their services,” he said.