Friday 3 April 2015

To Cliq or not to Cliq? (3)

Focus Malaysia (FM) wrote an article "Oil price slump not all sweet for SPACs".

FM revealed that Hong Kong listed Willie International Holdings Ltd (273) has tried to acquire the same assets in Kazakhstan about six years ago. Two relevant announcements can be found here and here.

Unfortunately no reason was given why Willie terminated the deal, other than that the deposit was returned, which often means that the potential buyer (Willie) was not at fault.

[On a side note, Willie International is mentioned by David Webb as being in the "Chung Nam" network, not a complement by any means.]

The above episode does indicate that for a long time already the owners of Phystech are on the lookout for a buyer. There might be some cause for concern there, why was no one interested and why do they so "desperately" want to sell their assets if they are so profitable?

A rather interesting comment is made by Ziyad, MD/CEO of Cliq:

"We know that it will fall within the fair market value, but I'm not saying 100% it will. We have intelligently analysed that the acquisition value is going to be within the fair market value unless oil prices fall to US$ 20".

That is a bold statement, so even if the price of oil falls to US$ 21 per barrel, the deal will go through as the acquisition price will be within the fair market value range? I think at the moment there is a lot of stress already in the oil & gas industry, I can't even imagine what would happen when the price falls significantly further. Players that are (highly) leveraged or have high extraction costs will face severe problems or even bankruptcy.

On another matter, the article in FM continues:

"A local analyst tells FocusM the success of the SPACs' listing is due mainly to the good governance, rules and regulations by the Securities Commission (SC)."

While I do admit that the SC has done a good job in safeguarding investors interests, that doesn't mean to me that SPACs suddenly make sense, from a business point of view.

Also, the analyst mentions "success", I wonder which "success" the analyst is pointing at. There is no SPAC yet that has produced any operational profit whatsoever (although I admit it is still early days), while all of them have incurred expenses so far.

The fact that several SPACs have been able to list is not a measure of success, at least to me.

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