Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly, on December 7 - 13, 2015.

 

A fairness report by independent valuers Deloitte Corporate Advisory Services Sdn Bhd indicates that the valuation of CLIQ Energy Bhd’s proposed qualifying asset (QA) should be substantially lower at below US$100 million (RM420 million), sources familiar with the matter tell The Edge.

This is significant for the special purpose acquisition company as a lower valuation on the QA, which involves buying a 51% stake in a vehicle housing Phystech Firm LLP’s two onshore Kazakhstan oilfields, would negate the need for a RM210 million cash call — announced by CLIQ in early October — and possibly make the QA more palatable to shareholders.

CLIQ is submitting valuation and fairness reports, alongside an agreed price tag for its QA, to Securities Commission Malaysia this week for its approval.

To recap, a purchase consideration of US$117.3 million (RM492 million at the current exchange rate) had initially been agreed to when CLIQ first announced the proposal to buy a 51% stake in the QA in March.

At the time, this was based on a net present value (NPV) of US$230.5 million, according to CLIQ’s (fundamental: 1.35; valuation: 0) announcement to Bursa Malaysia.

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However, Deloitte Corporate Advisory Services, in its latest fairness report, derived the lower purchase consideration based on an updated NPV of about US$190 million (RM797 million), which is about 17.57% lower than the previous figure, says a source.

Deloitte had been tasked with producing a fairness report based on AGR TRACS-Consult LLC’s updated valuation report on the QA.

The initial valuation report, dated April 1, had to be updated by AGR — the independent technical and asset valuation expert for the deal — as more than six months had lapsed.

According to the source, AGR’s updated report now values the QA at a marginal discount to the original NPV — somewhere around US$220 million — implying that the acquisition cost for the 51% stake is about US$112 million.

Back in March, when the proposal was announced, the price tag had been based on an oil price assumption of US$70 to US$89 per barrel from 2015 to 2021, according the CLIQ’s announcement to Bursa.

Since the date of the valuation reports in April, the price of crude oil has declined over 23% to close at US$44.46 per barrel last Friday, prompting some to deem the QA overvalued.

The tumbling ringgit also proved no help as the initial proposal was based on an exchange rate of 3.69 against the greenback. That same US$117.3 million price tag was worth RM433 million then, compared with RM492 million at today’s exchange rate.

CLIQ’s deadline to complete the QA falls on April 9, 2016 — three years after its initial public offering — meaning that it has just four months to obtain the SC’s approval, followed by 75% shareholder acceptance, before it can proceed with the acquisition.

When CLIQ debuted on Bursa in April 2013, it raised net proceeds of RM364 million at an issue price of 75 sen per share — 90% is being kept in a trust account for the purchase of a QA.

According to the company’s latest financial statements, funds under its trust account amounted to RM351.1 million or 74 sen per share as at Sept 30, pointing to a shortfall of about RM142 million.

The rights issue was proposed to cover this shortfall and give CLIQ some buffer for working capital.

But another concern would be if a majority of its shareholders voted against the QA.

CLIQ requires a 75% acceptance to be able to go ahead with the purchase, but even if it receives this margin, it would still have to return dissenting shareholders their cash currently held in trust.

Shareholders that may consider this quick return would be those that do not have the funds to subscribe for the rights issue, which would dilute their shareholding and potential earnings.

If 24.5% vote against the QA, it would still be approved but CLIQ would theoretically have to fork out as much as RM86 million from the trust account, resulting in a further funding shortfall.

CLIQ last Tuesday announced a new clause in its sale and purchase agreement. It stipulates that in the event there are insufficient funds caused by dissenting shareholders and adverse currency movements, the shortfall would be furnished via deferred payment (with 6% interest) up to six months from the completion of the acquisition.

CLIQ announced its proposed QA in March this year, entering a conditional sale and purchase agreement with Phystech to purchase a 51% controlling interest in a special purpose vehicle (SPV) that will be incorporated in 

Kazakhstan for US$117.3 million.

Phystech will inject two of its oilfield blocks in the Northern Kharazhanbas region into the SPV and list the vehicle on the Kazakhstan Stock Exchange.

About US$90 million of the purchase consideration is to be funded from the trust account, with the remaining US$27.3 million to be paid for via vendor financing from Phystech, based on the existing purchase consideration.

To date, CLIQ expects capital expenditure and working capital in the first year to amount to US$30 million (RM126 million) while that for the subsequent four years would be US$200 million (RM839 million).


Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

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