Sona Petroleum is winding up

Article from The Malaysian Reserve:


Malaysian oil and gas (O&G) special-purpose acquisition company (SPAC) Sona Petroleum Bhd pledged to pay shareholders 97% of the funds held in its trust account by November 2016, weeks after the deadline for it to secure a qualifying asset passed on July 29.

The remaining 3% will be paid within two years from then, after deductions for the liquidation and obtaining tax clearance.


That was to be expected. Regarding its last proposed qualifying acquisition:


Canadian oil company Mitra Energy Inc purchased the Stag oilfield in Australia for US$10 million, just three months after Sona Petroleum asked investors to approve a US$25 million deal for the same asset.

Stag, an ageing field that used to be owned by the Australian oil giant, is currently producing about 4,000 barrels of oil per day.

Sona Petroleum came close to purchasing the asset after it received the go-ahead from the Securities Commission Malaysia this year, but investors wary of declining industry conditions voted resoundingly against the buy.

Mitra Energy only paid 40% of the price Sona proposed to pay for the acquisition.

The deal was deemed to be "not fair", so it seems that assessment was pretty accurate.

Current shareholders get back a decent amount of money, but lots of money has been lost, through the many expenses: wages, rental (a rather plush office in Menara Petronas 3), IPO related, etc..

From its last financial results:

Next to that there are rather high opportunity costs, at the very least the money could have been compounded risk free at 4% interest per year.

Was it all worth it? I doubt it, but then again, I have been skeptical about SPACs from the word "go".

Sona Petroleum: a clear vote

It does not often happen that a proposal by the management of a Bursa listed company gets voted against by 77.4% of the votes, but that is what happened to Sona Petroleum:

With time running out, it seems extremely unlikely that Sona can propose an acquisition which will be approved by the shareholders.

"Yield seekers" seem to be a threat to the promoters of SPACs, it is therefore the duty off the management of these vehicles to:

• Propose a really good deal
• Communicate this clearly to the shareholders

Not an easy task.

With the promoters looking (again?) at a possible large loss of money, SPACs will most likely lose their shine.

Sona: proposing a deal that is not fair?

From The Star: "How will shareholders vote for Sona?", some snippets:


"Now that Sona Petroleum Bhd has gotten the green light from the Securities Commission (SC) to proceed with its maiden acquisition, will its shareholders vote the deal through?

Two issues complicate the matter: one that the deal has been deemed not a fair one by the independent advisor. And secondly, the profile of many of the current investors of Sona who are believed to be yield investors banking on the cash back option that Sona offers."


The first issue is really disappointing, there is a lot of blood on the street in the Oil & Gas industry, one would have expected the SPACs to profit from that, by coming up with deals that would have been ridiculously cheap just a year ago. The fall in the price of these kind of assets easily outweighs the decline of the RM versus the USD.

But Sona comes with a deal that is deemed to be not fair, Hibiscus is running in all kinds of legal problems while not showing a single year of operational profits and Cliq's proposed acquisition seems to be in dire straits (I expect it to be pulled).

Regarding Sona's proposed acquisition, readers should also take note of the comment made by Kinibiz:


" .... the management team’s primary focus is to secure a deal so long as it allows them to graduate, while shareholders will be torn between the promise of eventual gains post-QA (possibly quite far in the future) versus a tidy risk-free gain at the end of three years."

In other words, the interest of the management team and the shareholders is not aligned.

Hopefully Sona is able to renegotiate the price of its proposed acquisition down a lot. They probably have to, if they want to have a decent chance that the shareholders will vote in favor of it.

Cliq: messy annual report

Cliq announced on August 3rd its annual report, on August 5th its amended annual report and on August 7th another amendment on the same report. The last amendment consists of seventeen pages, quite shocking.

I do understand that Cliq's Board of Directors is getting all excited about its possible acquisition, but it really should put more care in writing its annual report.

Kinibiz wrote a good article, clarifying the different motives for management and shareholders of a Spac:

"Misaligned management and shareholder goals: Spacs".

Some snippets:


For the management teams of Spacs, it is about getting a qualifying asset or acquisition at all costs, so the company can graduate to become a full-fledged company like any other on the bourse. Shareholders, on the other hand, want to get a nice return on their investments and this might come even if the Spac does not graduate.

Cliq has identified and signed a sales and purchase agreement to acquire a 51% stake in two producing Kazakhstan oil blocks for US$117 million (RM429.53 million as at the announcement date) from a local Kazakh company, Phystech Firm LLP. It is currently in the process of gaining regulatory approvals before being able to take it to its shareholders. Sona, meanwhile, has said that its management team is in advanced discussions over several assets and is confident they will meet their deadline.They had better be confident, because the alternative is losing their entire investment.

It comes down to this: the management team’s primary focus is to secure a deal so long as it allows them to graduate, while shareholders will be torn between the promise of eventual gains post-QA (possibly quite far in the future) versus a tidy risk-free gain at the end of three years.

Management and shareholders, two different agendas – only in the curious world of Spacs.

Sona Petroleum, speculation about a possible acquisition? (2)

I wrote before about speculation regarding a possible acquisition by Sona Petroleum. I on purpose highlighted all the speculative elements in the article, in the "Moolah" style: "a source", "could be", "details are scant".

As "wammo" highlighted, an article in The Star indicates that the acquisition will not go through:


"Contrary to earlier speculation, special-purpose acquisition company (SPAC) Sona Petroleum Bhd will not be taking up any stake in Singapore-listed RH Petrogas Ltd, sources said.

RH Petrogas is an oil and gas (O&G) company controlled by Sarawak tycoon Tan Sri Tiong Hiew King.

The sources said that Tiong, whose flagship company is the unlisted Rimbunan Hijau Group, was not too keen on diluting his interest in RH Petrogas.

“Sona is now in the midst of evaluating other assets. It has moved on from RH Petrogas,” they said.

Market speculation had been rife that Sona could be buying a stake in RH Petrogas via both a placement of shares, as well as acquiring some of its assets, mainly offshore O&G blocks.

Earlier reports had indicated that Sona was close to taking up a 10% share placement in RH Petrogas. This had sent RH Petrogas’ shares to new highs, doubling in the last month alone.

The counter rose from 51.5 Singapore cents (RM1.28) on Sept 16 to a peak of 92 cents on Oct 10, before sinking to 81 cents at Monday’s close.

Meanwhile, Sona has not seen much movement. The mother shares closed unchanged on Monday at 44 sen, while its warrants ended 0.5 sen lower at 27.5 sen."


Much too much speculation these days, if one would ask me.

Sona Petroleum, speculation about a possible acquisition?

I received many interesting comments recently.

Regarding value investing: I hope to come back to this subject with more material, especially comparing similar companies with different debt levels and the effect on certain metrics.


Article in The Star:

"Malaysia's Sona Petroleum eyes 3 oil fields in Indonesia, China"

I received an interesting tip regarding the above in the comments.

[On a side note: please continue to do so, if you don't want the tip to be published, write so and I will of course respect that].

The tip referred to the above article in The Star and the note to clients of UOB-KayHian.

With Moola's blog being (unfortunately) very quiet lately, I give the first part, with my emphasis on all the speculations, which Moola so detests:


"Special-purpose acquisition company (SPAC) Sona Petroleum Bhd is close to making its qualified acquisition (QA), and the target company is Singapore-listed RH Petrogas Ltd, an oil and gas (O&G) company controlled by Sarawak tycoon Tan Sri Tiong Hiew King (inset). Tiong is chairman of RH Petrogas.

A source explained that Sona Petroleum could be both buying a stake in RH Petrogas via a placement of shares, as well as acquiring some of its assets, which are offshore O&G blocks.

While details are scant at the moment, insiders said that Sona Petroleum was looking to take up a 10% placement of shares in RH Petrogas, as the latter was looking to raise US$60mil (RM190mil) for capital expenditure.

Shares of RH Petrogas have been on a steady uptrend since early this month, rising around 30% over the week to close at 64.5 Singapore cents (RM1.65) on Thursday.

Sona Petroleum’s shares and warrants were also heavily traded, with the mother share gaining 2.5 sen to 43.5 sen, while the warrants rose 1.5 sen to close the day at 27.5 sen."

This a reference to a research note by UOB-KayHian:


"In a note to clients, Singapore’s UOB Kay Hian also mentioned this possibility, stating that according to its “channel check,” Sona Petroleum could be “looking at some of the O&G assets in the Singapore Stock Exchange-listed RH Petrogas.”


Channel checks? This is the definition of a "Channel check":

"a channel check is third-party research on a company's business based on collecting information from the distribution channels of the company. It may be conducted in order to value the company, to perform due diligence in various contexts, and the like. Industries where channel checks are more often conducted include retail, technology, commodities, etc."

How to place a "channel check" in the context of a possible acquisition by Sona? I am not sure.

Also, who would know about this kind of in-depth research, and is this not inside information? There is no official announcement by Sona Petroleum yet, so is the above mere speculation? Or did anyone receive inside information before the general public? Food for thought for the regulators (SC and BM)


I don't have the report by UOB-KayHian, but it seems it can be found here at Malaysia-Finance website (except that the pictures don't load).


I am not a fan of SPAC's, as readers of my blog might be aware of.

I would like to draw the readers attention to the following comment on Malaysia-Finance's blog, with which I fully agree:


"Investing in Special Purpose Acquisition Companies involved in the oil industry is like choosing an exploration company whilst being blindfolded. A veteran oilman will attest to how difficult it is to find a truly attractive oil company to acquire when given a limited time frame to do so.

What is available will be leftovers, namely aged fields discarded and on the verge of final decline or highly risky exploration plays.

Don't be deceived by those $/bbl calculations for it will mean nothing when production declines rapidly within a few short years unless costly EOR measures kicks in."


I would not want to call my self an expert in this field, but I have been actively investing in oil and gas companies for 10 years and have followed many listed companies. Reserves (proven, probable or possible) of billions of barrels, it sounds like having enormous potential, but there are many pitfalls:

• If an oilfield really looks like a bargain, why would the seller sell it?
• Owning the reserves and exploiting them is not exactly the same
• Many exploration projects will have cost and time overruns
• Costs also often escalate in time, especially after several operational years
• The price of oil and gas is very volatile and hedging against fluctuations could be expensive (airlines always seems to be on the wrong side of the hedging, losing billions in the process)
• If a field is highly profitable, the government of the country where it is located could either seize it, or increase taxes etc.

The Securities Commission will soon issue new guidelines for SPAC's, according to this article in The Star:


"The Securities Commission (SC) will soon issue new guidance notes relating to the listing of special-purpose acquisition companies (SPACs), a move that is aimed at ensuring new submissions are of a certain high quality, sources said.

There have been some concerns about the quality of submissions. The SC feels that it needs to elaborate on the original spirit of the SPAC guidelines,” said the source.

The new guidance notes should also enable applicants and their advisors to better understand the requirements of the regulator, thus helping avoid the unsavoury result of seeing applications rejected by the authorities, he added.

“The feeling is that the market has drifted away from the original spirit of SPACs,” noted the source.

That sounds good, although my solution would be more simple: just do away with these SPAC's. If people think there is money to be made, let them do it in the old-fashioned way by starting a "normal" company and only list it when it has proven its worth.