This article first appeared in Capital, The Edge Malaysia Weekly, on February 15 - 21, 2016.

DESPITE a slump in the oil market, special purpose acquisition company Sona Petroleum Bhd has announced plans to acquire its first qualifying asset (QA) — a 100% stake in the Stag Oilfield, off Western Australia — for US$50 million (RM215.2 million).

The acquisition is for production licence WA-15-L and pipeline licence WA-6-PL and associated assets owned by Quadrant Northwest Pty Ltd and Santos Offshore Pty Ltd.

The SPAC’s announcement ends months of speculation over its ability to make its maiden purchase before the July 2016 deadline. However, time is not on Sona’s side. The Stag Oilfield acquisition is still pending approval from the Securities Commission Malaysia (SC) and the blessing of the company’s shareholders.

Under SC regulations, a SPAC needs to use at least 80% of its funds, raised from the company’s initial public offering and placed in a trust account, for a QA. The proposed purchase of the Stag Oilfield, though, will only use 40% of the SPAC’s funds.

Sona justifies the gap by saying it intends to use the funds to further develop the Stag Oilfield, including the drilling of infill production wells.

Furthermore, its shareholders could still vote against the acquisition. If so, the funds held in trust will be liquidated and distributed on a pro rata basis. As at Sept 30, 2015, monies in Sona’s trust account amounted to RM523 million.

So far, investors’ reaction to the proposed acquisition has been lukewarm. Sona’s shares were trading at around 45 sen prior to the acquisition announcement and were still trading at 45 sen last Thursday.

Yet, for those who believe Sona’s plan to purchase the Stag Oilfield will pass the necessary approval hurdles and think management can push the company forward in the current depressed oil market, its warrants offer a decent opportunity for entry.

Last Thursday, Sona-WA was trading at six sen, having fallen over 45% since the acquisition announcement, and were at a discount to the underlying share. The American call warrant can be exercised, at 35 sen, any time up until its expiry on July 29, 2018. Based on its last price, the warrant was trading at an 8.9% discount to the underlying share.

It is worth noting that each warrant entitles the registered holder to subscribe for one new ordinary share in the company at any time upon or after the completion of the QA acquisition.

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