(Adds details on new regulations for Malaysian SPACs,
historical performance of peers)
KUALA LUMPUR Aug 15 Reach Energy Bhd
IPO-RESE.KL, set up by veterans in Malaysia's oil and gas
industry, made its market debut in Kuala Lumpur on Friday after
completing the country's largest-ever initial public offering by
a special purpose acquisition company (SPAC).
The 750 million ringgit ($236.44 million) IPO exceeded the
initial share sales by other local SPACs such as Sona Petroleum
Bhd and Cliq Energy Bhd, which raised
between $100 million and $150 million last year.
Reach Energy, which has no existing assets, is looking to
acquire firms in both the exploration and production segments of
Asia's oil and gas sector, following in the footsteps of
Hibiscus Petroleum, Sona Petroleum and Cliq Energy.
SPACs, common in the West but still rare in Asia, attract
investors who hope a team of experienced industry executives can
translate seed money into profits down the road. They are also
drawn to bonus giveaways such as warrants attached to shares
bought during IPOs.
But there are risks unique to SPACs.
In the United States, half of the SPACs launched in the past
decade have failed to complete an actual acquisition and posted
negative annual returns, according to data from research firm
Malaysia late last year tightened rules on SPACs to assure
investors their money will be secure in the months or years that
such shell companies might take to find an income-generating
People in the industry say only the best of SPACs have made
it to the market in Malaysia, owing to the strict rules set on
them. Regulators have rejected a number of applications, for
firms ranging from palm oil to healthcare, as their management
teams lack a track record and the ability to generate returns
for shareholders, a source told Reuters.
Malaysia's Securities Commission said in December that SPAC
funds from an IPO must not be used to pay remuneration for the
management team until an asset acquisition is completed. The
company's management also cannot sell their shares in the SPAC
until assets are generating income.
The firm's management, whose experience and track record
must fall in line with the SPAC's objectives, must hold at least
a 10 percent stake to ensure a "meaningful financial
Reach Energy is led by Managing Director and Chief Executive
Officer Shahul Hamid, who has had senior roles at Esso, Shell
and Petroleum Development Oman (PDO). Other top officials
include former staff from Petronas, Schlumberger and Sime Darby.
According to Reach Energy's IPO prospectus, Malaysia's
pilgrimage fund Lembaga Tabung Haji, CIMB-Principal Asset
Management Bhd, and Hong Leong Asset Management are among the
cornerstone investors in the sharia-compliant company.
"This is seen as the safest SPAC to date, because it is the
first one to genuinely attract institutional attention here,"
said a banker who was involved in the Reach Energy IPO.
Shares of Reach Energy fell 6.7 percent to 70 sen as of 0330
GMT, down from its offer price of 75 sen per share. The stock
dropped as much as 8 percent to 69 sen.
SPACS IN MALAYSIA
Hibiscus Petroleum - the first SPAC in Malaysia and
Southeast Asia - bought a 35 percent stake in Norway's Lime
Petroleum over two years ago.
The purchase has earned Hibiscus Petroleum a positive cash
flow, after the company spent nearly two years in the red. But
it will need more acquisitions to go beyond the 9 million
ringgit to 12.6 million ringgit it has seen in net income in
recent quarters, according to industry observers.
The company, whose top officials have worked with global
industry giants such as Chevron, Murphy Oil, Schlumberger and
ExxonMobil, aims to build an asset portfolio strong enough to
support dividend payments while funding newer ventures that are
still in a risky phase.
Sona Petroleum made its first acquisition with a 40 percent
stake in oil and gas blocks from London-listed Salamander Energy
Plc for $280 million.
It targets exploration and production assets in Asia, the
Middle East and Africa, according to the company's website.
Meanwhile, Cliq Energy has short-listed two potential
acquisitions and is currently awaiting regulatory approval.
Shares of Hibiscus Petroleum have gained 65 percent since
the company's IPO, while Cliq Energy has risen 10 percent and
Sona Petroleum 25.6 percent since their respective entries.
(1 US dollar = 3.1720 Malaysian ringgit)
(Reporting by Al-Zaquan Amer Hamzah and Yantoultra Ngui;
Editing by Ryan Woo)