Hibiscus builds cash holdings to bid for regional assets

The RM203.6m tranche is part of the larger RM2b Islamic CRPS, which the company announced on Sept 9


HIBISCUS Petroleum Bhd will be entering into bid processes to acquire high-quality upstream oil and gas assets in South-East Asia in the next six months after successfully raising RM203.6 million from its Islamic convertible redeemable preference shares (CRPS) issue, to date.

The RM203.6 million tranche is part of the larger RM2 billion Islamic CRPS, which the upstream company announced on Sept 9, 2020.

Its MD Dr Kenneth Pereira (picture) said the potential assets would make material changes to the company, having between three and four times Hibiscus’ current output rate of just under 10,000 barrels a day.

He did not disclose the potential assets when asked if these include Exxon Mobil Corp’s assets in Malaysia which are up for sale.

“The size of the initial proposal of the RM2 billion of Islamic CRPS would indicate a very material acquisition which is not something small that could be funded through a simple placement. It also has a debt element, thus not all to be equity-funded.

“We have to meet the criteria and obviously if these are good assets, one can imagine any bidding process can be competitive with strong cashflow and good internal rate of return,” Pereira said in a virtual press conference yesterday.

Given the market conditions, he said a 40% equity and 60% debt would be a good ratio and a 50-50 debt-to-equity is a safe case.

In September, Bloomberg reported that ExxonMobil shortlisted Hibiscus as one of the bidders for its oil-producing offshore assets in Malaysia.

Other contenders eyeing the same assets include Sapura Energy Bhd and UK-listed EnQuest plc.

Hibiscus said its Islamic CRPS issue has been subscribed by domestic and foreign institutional investors.

The group said the CRPS would be issued in multiple tranches to minimise dilutive effects to existing shareholders based on the acquisition pipeline.

The fundraising offers potential equity upside where the conversion price is fixed upfront. Tranche 2 is fixed at 48 sen.

The instrument also offers mandatory conversion into Hibiscus’ shares when the acquisition is completed.

The CRPS structure also offers downside mitigation whereby if acquisitions are not completed within two years, outstanding CRPS is redeemed at 4% per annum.

The CRPS may be traded on the Main Market of Bursa Malaysia or converted into listed Hibiscus shares.

On its asset strategy in Australia, Pereira said the company is not actively putting assets there on the market and, at the same time, looking for partners to develop the assets.

Hibiscus chairman Zainul Rahim Mohd Zain said any recovery in prices in the energy market will depend a lot on the Covid-19 pandemic, OPEC+ output compliance and US’ shale production.

He said the crude oil price is expected to be stable in the second half of next year, and if all goes well with global economic recovery, the price could strengthen in 2022 onwards.

Brent crude futures rose to US$45.28 (RM185.20) a barrel yesterday (at press time) in expectation of demand recovery following promising Covid-19 vaccine trials.