Sunday, 3 January 2016

When will Hibiscus bloom? (4)

There has been confusion regarding the size of a stake in subsidiaries of Hibiscus Petroleum. The company was queried by Bursa and gave some answers.

It looks like a rather murky affair, with lots of legal angles, many of them in jurisdictions outside Malaysia, very difficult to evaluate. These kind of legal battles tend to be costly and can take a long time to resolve.

Kinibiz wrote an interesting article about the affair, some snippets:

This leaves Lime Petroleum Plc – in which Hibiscus Petroleum has 35% – with just 3.51% compared to 73.82% previously.

According to a report by Singapore Business Times, LPN cut its share capital from 382 million Norwegian krone to 80.32 million krone by accounting for 30.9 million krone of uncovered losses and transferring 270.8 million krone to other equity. Then 900,000 LPN shares held by Rex were cancelled and Rex then reinvested the 77.4 million krone it received into LPN for new shares.

On Dec 14, 2015, Singapore Stock Exchange-listed Rex International Holdings Limited, which owns Rex Middle East, announced that it now controls 98.77% of LPN – up from 73.82% –following a restructuring of the company’s capital.


In other words, surely Hibiscus Petroleum had knowledge of the exercise proceeding as a shareholder. What went wrong?

Among others, shareholders tracking Hibiscus Petroleum’s filings to Bursa Malaysia would not know much detail of what sort of restructuring took place at LPN. There is also scant information on how much was disclosed to Hibiscus Petroleum prior to the restructuring taking place and how accurate the company thinks this information may have been.

A number of questions rise for the average minority shareholder in Hibiscus Petroleum as well as the market at large, given the relative scarcity of information as to what really happened leading to this remarkable dilution in one company.

Hibiscus is raising money through a private placement (as it had done many times before), which will give some much needed support to its balance sheet. But at a share price much lower than most other shareholders paid for their shares, giving rise to large dilution.

From the moment that SPACs were announced by the authorities a few years ago, I have been very skeptical about them. I don't see yet any reason to change that stance.

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