This article first appeared in Corporate, The Edge Malaysia Weekly, on April 25 - May 1, 2016.

ABOUT 48 sen per share — that’s what Sona Petroleum Bhd’s shareholders will get if they vote against the company’s proposed qualifying acquisition (QA) to become an oil and gas exploration and production company and the QA wins at least 75% approval at the extraordinary general meeting (EGM) this Tuesday (April 26).

That buyout amount is at least 90% of the 50 sen apiece they had forked out when subscribing to shares of the special purpose acquisition company (SPAC) that had three years to acquire a core asset with at least 80% of the cash raised at its initial public offering. Given that the free warrants (that came with each IPO share) have traded between 3.5 sen and 12 sen (7.4 sen average) since their debut on July 30, 2013, it seems that Sona IPO shareholders will get back their invested capital, with some possible gains for the more savvy traders.

As the IPO subscribers will also stand to get back about 90% of their investment “as soon as practicable” if Sona is liquidated when a QA fails to materialise by July 30, they currently have the upper hand over Sona’s promoters and key managers.

The promoters and key managers, represented by Platinum Autumn Sdn Bhd with a 20% stake in Sona, will not get a pro-rata share of the cash held in trust should a liquidation occur when the QA fails to happen within the three years. Platinum Autumn’s loss will be roughly RM100 million if Sona is liquidated, a back-of-the-envelope calculation shows.

The risk of liquidation is real, as a July 30 deadline leaves the management only three months to find a new QA if the proposed US$25 million purchase of Stag Oilfield’s assets in Western Australia falls through.

The crucial vote to pass the QA was postponed from March 30 to April 26, with an improved cash return promise to non-dissenting Sona shareholders if the QA is passed.

From offering to return between zero and RM80 million (0 to 7.09 sen per share) to non-dissenting shareholders if the proposed QA is passed and those voting against it hold less than 125 million shares, Sona’s management team on April 13 told the board that it will now pay eight sen apiece after the QA is passed, regardless of how many shareholders vote against it.

The caveat here is that Platinum Autumn wants the Securities Commission of Malaysia to allow it to convert up to 193.5 million warrants that are under moratorium (about 34% of the total) into shares to help fund the capital repayment. They also want to be allowed to sell the converted shares, for which conversion would first cost them RM67.7 million (35 sen apiece).

Under the original moratorium, Platinum Autumn can only begin selling its shares once Sona has generated one full year of audited commercial revenue from the QA (around March 31, 2018). Platinum Autumn now wants to be allowed to convert 34% of its warrants into shares by Sept 30, 2016, and be allowed to sell them. The remaining 66% of its stake will still be kept under moratorium until Aug 31, 2019, which is the first-year anniversary of the renewal of the production licence, according to Sona’s April 13 announcement to Bursa Malaysia.

Although the additional cash spent on warrant conversion is an added investment in Sona, Platinum Autumn could end up with a 36% stake in Sona if none of the converted shares are sold. That stake would be worth about RM143 million, according to the company’s proforma book value of RM399.5 million, assuming a 25% share repurchase from dissenting shareholders.

The RM143 million is more than double the cash Platinum Autumn had invested in Sona, the bulk of which would come from the proposed warrant conversion to partly fund the QA sweetener (8 sen capital repayment). However, if there is no QA and Sona is liquidated, Platinum Autumn’s 20% stake will not be entitled to any cash distribution, which will only go to those who bought Sona shares during and post-IPO.

As at Dec 31, 2015, the amount held in trust was RM527.5 million or about 47.9 sen per share before taking into account any taxes payable and liquidation and cash distribution costs. This amount had grown from RM495 million or 45 sen per share at IPO, being 90% of the subscription price in July 2013.

It is worth noting that when Sona debuted on July 30, 2013, Brent crude oil was at US$107 and the ringgit was at 3.2255 to the US dollar. Brent then tumbled to US$27.88 on Jan 20, 2016, before recovering to the current US$45 level. At the time of writing, the year-to-date average for Brent was US$36.55 and the ringgit was 4.1388 to the greenback.

Oversupply concerns remain, despite the firmer oil prices, as oil and gas stocks no longer command as rich a valuation as during their heyday.

At the EGM at the Grand Hyatt Kuala Lumpur this Tuesday, Sona’s minority shareholders should take the chance to obtain good answers on why they should give up the chance to get back the cash they had invested — which will happen if they vote against the QA and the QA is passed, or if Sona is liquidated. 

One question Sona shareholders might want to ask at the EGM is, would the eight sen capital repayment still be given if the SC does not allow the moratorium change or mandatory general offer exemption for Platinum Autumn.

If Sona succeeds in getting its QA passed, it will be the second SPAC in Malaysia — after Hibiscus Petroleum Bhd — to graduate. If it fails, it will likely join Cliq Energy Bhd, which is in the process of being liquidated at the time of writing, although the latter’s promoters have gone to court to fight for another chance. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.