Will Reach Energy get lucky?
PETALING JAYA: The recent spew of rejections for qualifying acquisitions of special purpose acquisition companies (SPACs) have put Reach Energy Bhd’s qualifying acquistion (QA) in the spotlight with analysts saying it will be a big challenge for Reach Energy to buck the trend for its proposed Kazakhstan deal.
The current low oil price environment has vilified oil and gas SPACs to the extent that investors have opted to cash in rather than go the long haul.
Sona Petroleum hit a snag on Tuesday when institutional investors played a key role in blocking its proposed acquisition of Stag Oilfield offshore Australia.
Inter-Pacific Research Sdn Bhd head of research Pong Teng Siew said the fall in share prices of SPACs, which was due to the oil price drop, has given investors a chance to accumulate sizeable shares at a low level, with an estimated 20% return for shareholders of Sona Petroleum in particular.
“They (institutional funds of Sona Petroleum) can command enough voting rights to defeat proposal for any QA, therefore they can lock in a sizeable profit,” he said.
“There is some chance that (Reach will go the same way), the only thing I can say is maybe there is a little bit more in favour of Reach Energy’s QA.
“Perhaps the fact that (the purchase) volume at the low level didn’t look very large. The institutional investors who bought at low level may not be able to command votes to defeat the resolution,” Pong told SunBiz.
“It’s 50:50 whether they will get it through, the institutional funds would have been able to make a 15% to 17% return if they had accumulated sizeable position at the bottom,” he added.
Filings with the stock exchange show Credit Suisse Group AG’s shareholding in Reach Energy increased 5.6% stake following the purchase of 857,700 shares or 0.67% stake on April 19. Credit Suisse
owns 13.7% in Sona Petroleum.
Last month, Reach Energy signed a conditional sale and purchase agreement to acquire oil and gas assets in Kazakhstan for US$154.9 million (RM638.2 million).
When contacted by SunBiz, Reach Energy managing director and CEO Shahul Hamid Mohd Ismail said he is unperturbed by the failure faced by his peers and believes that institutional funds such as Credit Suisse will support the QA.
“They (Credit Suisse) are well known in the oil and gas arena, we don’t think they are short-term investors,” he noted.
Meanwhile, an oil and gas analyst who declined to be named opined that the chances of Reach Energy proceeding with its QA are only 50%, especially with political uncertainties in Kazakhstan and high petroleum taxes.
“Also, not many players have succeeded in Kazakhstan, it’s still unknown. So we don’t know whether the QA will go through or not. It is 50:50 now,” he said.
Reach Energy’s share price was unchanged at 68 yesterday, while Sona Petroleum’s rose half a sen to 44 sen.