This article first appeared in The Edge Financial Daily on June 11, 2018
KUALA LUMPUR: Recent weakness in Red Sena Bhd shares, as the food and beverage (F&B) special purpose acquisition company’s (SPAC) mandated requirement of making a qualifying acquisition (QA) remains elusive, has created a good buying opportunity.
It is worth noting that the share price of Red Sena has gained 4.4% year to date to its last closing price of 47 sen last Thursday, despite a 6% decline from its initial public offering (IPO) price of 50 sen a share. The stock was untraded last Friday.
The cash raised in its IPO that has been placed in a trust account amounted to RM391.64 million as at March 31, 2018. In the event the SPAC fails to complete a QA by the Dec 10, 2018, time frame, the amount then held in the custodian account will be distributed to the respective shareholders.
This translates into 49 sen per share based on the SPAC’s total issued shares of one billion minus the 200 million shares held by the SPAC promoter — Raintree F&B Sdn Bhd, who is not entitled to the cash in the trustee account. This implies a 4.1% upside from current levels.
And this has not taken into account its other receivables, deposits and prepayments of RM4.64 million, short-term Islamic investments of RM17.85 million and bank balances of RM332,535.
Hence, some investors may see the recent share price weakness as a good entry level in the event the company has to be liquidated as they take advantage of the price differences.
And if Red Sena manages to secure a QA, investors may enjoy its returns as a regular listed company on the local bourse. Take Hibiscus Petroleum Bhd’s share price for example. It has doubled over the past year to close at 92.5 sen last Friday, bringing a market capitalisation of RM1.47 billion.
When contacted by The Edge Financial Daily, Red Sena executive director and chief executive officer Joseph Tan Eng Guan declined to comment on the company’s progress in securing a QA.
Red Sena, which was listed on the Main Market of Bursa Malaysia in 2015, is one of five SPACs that have sought listing on the stock exchange. Today, Hibiscus and Reach Energy Bhd have successfully secured their QAs and are no longer a SPAC, while CLIQ Energy Bhd and Sona Petroleum Bhd had to be liquidated after failing to secure their QA within the three-year time frame.
Unlike the other four SPACs that are involved in the oil and gas sector, Red Sena is the only SPAC involved in the F&B business.
In a filing with Bursa Malaysia on May 22, Red Sena noted that it had yet to sign a conditional sale and purchase agreement for a QA.
“The two key challenges, namely, doubts surrounding deal certainty and unrealistic valuation, continue to be the major obstacles to Red Sena securing a QA,” added the SPAC.
It also highlighted that it did not have any hot prospects other than the firm approaches it made to a handful of QA candidates that had been shortlisted.
In March, after its annual general meeting, Tan said the company had been talking to more than 50 companies, but had yet to identify a suitable asset to acquire.
As required under Bursa’s listing rules, Red Sena has to make an appropriate announcement by end-June or early July with regard to its ability to complete a QA within the permitted time frame.