Reach board changes test SPAC rules

Redesignation of former MD raises questions

PETALING JAYA: The recent board changes in Reach Energy Bhd that saw the appointment of an executive chairman is once again testing the rules governing companies that found their origins as a special-purpose acquisition company (SPAC).

The change in Reach Energy saw former managing director Shahul Hamid Mohd Ismail redesignated as executive director.

The board is now headed by Tan Sri Azmil Khalili Khalid, who was appointed as executive chairman.

Sources said that there was a view within the company that Shahul’s redesignation has put him and the management team in a less favourable position.

While Shahul has been redesignated to executive director at the board level, he remains managing director of the company operating the main asset of Reach.

“Shahul’s current position is compromised as he needs the powers to hire, fire and run the show.

“He may not be able to do so if the board does not agree,” said a source.

In addition, the sources said the equity guidelines for SPACs set by the SC states that the procurement of a qualifying asset must not result in a change in the board of directors or key management team members of a SPAC.

However, the shareholders of Reach Energy feel that their interest has to be protected because it is no longer a SPAC, having completed the acquisition of a qualifying asset.

“Azmil is seen as having taken the lead among a group of investors who have put their money to support Shahul. These investors need to have their interest taken care of and ensure that overall operations are run well,” said an investment banker.

While it may sound like Azmil’s appointment is contentious, the investment banker felt that Reach Energy was no longer a SPAC and the redesignation was in line with taking care of the interest of shareholders.

While Reach Energy has secured the acquisition of a 60% stake in Palaeontol BV, the asset will only be recorded in its books in the second quarter of this year.

The acquisition of Palaeontol BV, which is the owner of the onshore oil and gas field called Emir-Oil LLP in Kazakhstan, was completed for US$154.89mil (RM640.54mil).

To date, Azmil is the largest shareholder in the company, owning a 19.88% stake in the company or 222.78 million shares, accumulated directly as well as deemed or indirect interest shares through MTD Capital Bhd and his spouse, Puan Sri Nik Fuziah Nik Hussein.

Azmil is president and CEO in AlloyMtd Group and concurrently holds the same position in the listed subsidiary of MTD Capital Bhd namely, MTD ACPI Engineering Bhd.

He is also chairman of MTD Walkers PLC, a foreign subsidiary of MTD Capital Bhd that is listed on the Colombo Stock Exchange in the Republic of Sri Lanka.

Despite the management owning more shares than Azmil, at 20% equity stake, it is unclear if the management has any voting rights for the board reshuffling.

Should any of the promoters leave the company, they are required to transfer their shares to the remaining management team of the company.

As stated in Reach Energy’s prospectus, shareholders who are employed or engaged by the company during the moratorium period will have to offer all the shares held by him or her to the remaining management team. The moratorium period stands until the company has commenced commercial production and generates one full year of audited operating revenue.

The management’s moratorium on shares of Reach Energy can only be lifted if the team fulfils the obligations.