Saturday March 2, 2013
Yusli is among personalities that will lend credence to Australaysia
By TEE LIN SAY
SINCE the successful listing of Malaysia's first special purpose acquisition company (SPAC) Hibiscus Petroleum Bhd in July 2011, there have been other hopeful companies dreaming of replicating that success.
The highlight for Corporate Malaysia this week, would definitely be the upcoming mining SPAC, Australaysia Resources and Minerals Bhd, headed by Bursa Malaysia's former chief executive offer Datuk Yusli Mohamed Yusoff.
Investors may be sceptical, doubtful or even scoff, but their interest surely piqued by Bursa's former chief lending his star power to support his entrepreneurial ventures.
Will Yusli be able to steer Australaysia into emulating Hibiscus' success?
Hibiscus' managing director Dr Kenneth Pereira has become something of a “mini icon” in the Malaysian corporate scene. In business events and social joints frequented by people in the financial services sector, Kenneth is constantly given the pat on the back or the “high five” for a job well done. Of course, a lot of this has got to do with the trailblazing way Hibiscus' shares have performed.
It was listed at an initial public offering price (IPO) of 75 sen back in July 2011. One free warrant was also given for every one share subscribed. Today, at Hibiscus' shares of RM1.50, and its warrants at 98 sen, an early investor would have made a return of some 333%.
To date, the company also has eight concessions across the Middle East, Australia and Norway. All achieved within 15 months.
Since then, CLIQ Energy Bhd and TerraGali Resources Bhd have released their draft prospectus on August 2012 and Feb 2013 respectively. CLIQ is hoping to follow in Hibiscus' footsteps, by embarking on the oil and gas exploration and production path while TerraGali is in the business of mining mineral assets.
Latest SPAC is Australaysia, which released its draft prospectus yesterday, will be involved primarily in the business of gold and precious metals mining.
Australaysia is said to be looking to raisebetween RM157.5mil and RM315mil, which is similar to what TerraGali is looking to raise. CLIQ is a lot more ambitious, and is looking to raise RM500mil. Hibiscus raised RM235mil from its IPO and enjoyed 3.8 times oversubcription of its public portion of shares.
Many in the investing community feel that raising that sum of money is going to be tough under present market conditions. Furthermore, unless the SPAC is able to find a strong cornerstone investor, it is going to be a formidable task to attract big money into a shell company which is involved in a capital intensive sort of business.
“Hibiscus had an all-star management team. Furthermore, it attracted reclusive tycoon Tan Sri A.P. Arumugam to invest in it. That is a strong sign of endorsement. Furthermore, his son Roushan Arumugam is also a director in Hibiscus,” says one observer.
Observers feel that of the three upcoming SPACs, Australaysia may hold a little more appeal going by the more well known names on its board. A “strong name” can give a company that extra edge, an intangible value which lends more strength to the company's future potential. Typically, a stronger name would have access to better funding avenues, better quality assets for acquisitions and a larger pool of quality investors.
Undeniably Yusli's name brings credibility to Australaysia. While regulators and SPACs do not have much in common, Yusli's vast experience in capital markets along with his wide network of corporate figures and high net worth individuals will be a boon for the company. Yusli will be executive chairman of Australaysia. The other Malaysian, Lim Hun Soon @ David Li is no lightweight.
The other directors include Australians David George Savage and David Kent McAdam, Irish Brian Egan and South American Carlos Armando Ballon Barraza. They have experience in the mining industry spanning three decades over four continents.
The mining business is known to be capital intensive, with many companies failing to reach production stage due to a variety of reasons ranging from funding and a lack of expertise and technology.
The typical value chain for a mining company spans over five years, which starts from the geological concept, exploration, mine development, mine operations then revenue generation. “Australaysia would probably be looking to invest in companies that have some feasibility towards production. Perhaps it would look at companies which lack funding or has no expertise in bringing the minerals to the production stage,” says one banker.
“If you believe in the potential of the company, then Australaysia could be a cheaper entry compared with investing in an outright mining company. Valuations for a producing mining company typically have richer valuations,” says the banker.
There are also some investor protection mechanism in place. For example, the money raised will be kept in a trust fund and managed by an independent custodian. That money cannot simply be spent for any acquisitions, the banker says.
“There are protective clauses put in place,” he says.
A SPAC is essentially a company that has no operations or income-generating business at the point of its IPO. Instead, it will undertake an IPO for the purpose of raising funds to acquire operating companies or businesses.
A SPAC is given three years to secure a qualifying asset, or 90% of the IPO proceeds must be returned to the IPO investors.
The adviser, managing underwriter and placement agent for the proposed listing of Australaysia is Aminvestment Bank Bhd.
Under the SPACs guidelines, 90% of the funds raised will be held in a trust fund and returned to investors if no qualifying acquisition (QA) is completed within the stipulated time of three years.
Some 80% of the funds from the trust also have to be used for the QA. The acquisition of the QA is subject to a 75% agreement among shareholders at an EGM. The promoters and management will have no voting rights during this EGM.
The QA should also form the core business of the company and cannot only be for investment purposes.