Sona still keen on Salamander, but has other options

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LAST FRIDAY, Sona Petroleum Bhd’s stock closed at 40.5 sen, its lowest level since its listing on Bursa Malaysia at end-July 2013, and 19% below its initial public offering price of 50 sen.

Sona, the third special purpose acquisition company, or SPAC, listed on the local bourse, has been through several rough patches in its quest for a qualifying asset, which explains its falling share price.

Nevertheless, Sona’s managing director, Datuk Seri Hadian Hashim, brushes aside the stock’s lacklustre performance. “It’s just a knee-jerk reaction,” he says in an exclusive interview with The Edge.

Hadian also downplays the notion that Sona will falter in its plan to acquire 40% of Salamander Energy’s Thai assets B8/38 and G4/50 for US$280 million (RM903 million) as its qualifying asset. He says there are other assets Sona can acquire if the Salamander deal does indeed fall through.

“We still have 18 months [to buy a qualifying asset as per the requirements for SPACs]. I’m confident that we will get another asset [within the stipulated time]. We looked at 37 assets [before deciding on Salamander’s Thai assets]. With a smaller pool [to sieve through] now, and with assets backed by a bank — which means most of the due diligence is done — we should have no problem,” he says.

He says there are at least two assets available to Sona to fulfil its qualifying asset acquisition, but declines to elaborate as he is bound by non-disclosure agreements.

The slump in Sona’s stock is understandable, considering the hype in June when its plans to buy Salamander’s B8/38 and G4/50 were first announced.

At the company’s AGM in June, Hadian had said that based on a “conservative crude oil price of US$100 per barrel per day”,  Sona’s 40% stake in the oil and gas assets could translate into daily revenue of US$560,000, which would work out to more than US$200 million a year.

“Our agreement will be from Jan 1, 2014, so we will be able to recognise all the revenue and profit this year if the deal is concluded by the fourth quarter of 2014,” he had said.

Considering Sona raised only RM550 million from its IPO, the company’s plans were to raise as much as US$140 million via bank borrowings.

Its initial plans were to sign the sale and purchase agreement by end-June 2014, and make its submission to the Securities Commission by end-July, after which shareholders’ approval would be sought.

However, there is many a slip twixt the cup and the lip.

Sona made its submission to the authorities in September and received the green light only last week. It has yet to obtain the nod from shareholders.   

These delays have resulted in Salamander being wooed by other parties.

In mid-November, Cia Espanola de Petroleos SAU or Cepsa, made a US$587 million bid for Salamander.  Cepsa is a Spanish refiner and oil producer owned by Abu Dhabi. Cepsa partnered Hong Kong-based Jynwel Capital, linked to flamboyant businessman Low Taek Jho, in the bid. However, the deal faced several glitches and seems to have been scuttled. The Cepsa-led consortium’s offer was conditional on Salamander cancelling its deal with Sona.

Then last week, Ophir Energy plc made what seemed like a successful offer of £314 million (RM1.6 billion) for Salamander.

In a joint announcement, the boards of both companies — Salamander and Ophir — said they had reached a consensus on the proposed acquisition, which was to be via a share issue.

Some directors of Salamander, who control slightly more than 2% equity interest, stated their intention to recommend that shareholders vote in favour of Ophir taking over as opposed to selling Salamander’s stake in the Thai unit to Sona.

Salamander’s shareholders, SailingStone Capital Partners LLC and Artemis Investment Management LLP, which control stakes of 13.4% and 4.3% respectively, have given their “irrevocable undertaking”  to support the Ophir deal.

T Rowe Price International Ltd and T Rowe Price Associates meanwhile, gave non-binding letters of intent to vote in favour of Ophir as well. A check on Bloomberg reveals that T Rowe Price Associates has 8.43% in Salamander.

Despite the seemingly strong support for Ophir’s takeover plan of Salamander, Hadian says that Sona still has a chance to snare the deal for 40% of Salamander’s  Thai assets.

“First and foremost, we are still committed to this deal [and] we have the SC’s approval . The next step is to get shareholders’ approval, but things are still fluid.

“At the end of the day, if you look at the list of [Salamander’s] shareholders, only two — SailingStone and Artemis — have given irrevocable undertakings. Things are still open-ended as they [Salamander and Ophir] have to get [their respective] shareholders’ approval.

“In any business, there are always hurdles, there is always competition… It’s no different in oil and gas,” he sums up.

This article first appeared in The Edge Malaysia Weekly, on December 1 - 7, 2014.