Friday, April 13, 2012

Hibiscus-WA - a buying opportunity or a warning??

Hibiscus Petroleum Bhd ('Hibiscus') is the first Special Purpose Acquisition Company (“SPAC”) listed on Bursa. In October last year, Hibiscus announced its qualifying acquisition, by acquiring a 35% equity interest in Lime Petroleum Plc (“Lime”) for a total purchase consideration of USD55 million. Lime has majority interests in companies with concession rights in three offshore oil and gas exploration assets located in the United Arab Emirates and Oman.

The qualifying acquisition requires approval from the Securities Commission ('SC') and the shareholders. The former approval was secured from SC on February 16 (here). On March 21, Hibiscus's shareholders unanimously approved the qualifying acquisition (here).

The trading of Hibiscus shares & warrants since the September has been on an uptrend, due partly to the overall recovery in the stock market & partly due to positive sentiment following the announcement of the qualifying acquisition. Now that the company has secured all the necessary approval, the qualifying acquisition should be completed soon. 

There is a persistent discount in the price of Hibiscus-WA since the start of the year. This warrant, which will expire in July 2014, has an exercise price of RM0.50 (here). Its conversion to ordinary share is subject to one condition, the completion of the qualifying acquisition. If the qualifying acquisition is a remote event, it may explain the discount in the price of the warrant. But, with all necessary approval secured, the completion of the qualifying acquisition is almost a certainty. 

Right now, you can buy Hibiscus-WA at RM1.25, which- after factoring in the exercise price of 50 sen- is at discount of 42 sen when compared to the price of the ordinary share of RM2.17. Is this a buying opportunity or is this a sign of trouble? Investors may be excused for having some doubts as to the timing & eventual completion of the qualifying acquisition, but this should not cripple the insiders to the extent of sitting quietly & ignoring such a juicy trading opportunity. Why aren't the insiders buying? I always believe that when the market serves up a free lunch, we have to be very careful.

 Chart: Hibiscus & Hibiscus-WA's daily chart as at April 13, 2012_3.00pm (Source: Quickcharts)


Big Sea said...


I believe the top management of Hibiscus own around 20% of option share. The condition for these share to be floated is that the shareholders need to vote for it at the end of 3rd year.

1). Shareholder votes for it, Hibiscus will be diluted by 20%.

2). Shareholder votes against it, this SIV will be dissolved and shareholder will get their cash of around RM 0.6+ which is sitting insider the trust account.

If we take the price of Hibiscus to be just 80%, the spread is not so big.

By the way, I am not very sure about the exact details. This may or may not be the reason for Hibiscus to be trading at a discount.

moon said...

Mind comment on Kretam technically & fundamentally ? (Plantation)
I just bought in at RM 2.34

Frederick said...

In conclusion , it is a buying opportunity or a warning??

Alex Lu said...

Hi Frederick

A buying opportunity or a warning? You judge for yourself. After all, I ended my post with this comment:

I always believe that when the market serves up a free lunch, we have to be very careful.

Alex Lu said...

Hi Big Sea,

The shareholders have voted in favor of the Qualifying Acquisition. SC has approved. So the completion is almost a sure thing.

What do you mean by this: If we take the price of Hibiscus to be just 80%, the spread is not so big.

Alex Lu said...

Hi moon,

Kretam is still in an uptrend. There is a bit of technical weakness. I believe the stock may drift down to its support as horizontal line & 40-week MA line at RM2.23-2.25.

Kretam at RM2.36 is now trading at a PE of 7.9 times (based on FYE2011 EPS of 30 sen).

Big Sea said...


More details are here.

1). Once an QA is approved, 20% of share ownned by Management will be allowed to float,[but I am not too sure about the schedule].

2). In addition to WA, management also owns WB, which again is only active after QA is approved.

All these will diluted HIBISCUS share price.

Big Sea said...


Sorry, I misunderstood the complete scenario. I was looking at how Hibiscus will be diluted if all option shares are exercised. However, anyone who purchase WA can convert to Hibicus and enjoy the discount IMMEDIATELY and therefore any dilution is irrelevant. Very sorry for all the confusion!

foowinz said...

Hi Alex, in this case can we buy the Hibiscus-wa and excercise to convert the Hibiscus. Usually how long it will take to do that ? Thanks

Anonymous said...

from the company website you can confirm it only takes 8 processing days from completion of the acquisition which is underway now.

everyone here can get all the info i got from the company website to make a firm investment decision.

my investment decision was made on the view that the company has a robust business plan and acquisition strategy.

upon completion of their acquisition they will focus on the respective drilling programs of the various concessions they are involved in.

once they strike oil and commercial production is underway, the present entry cost/s of the warrants and main shares are negligible.

their website contains comprehensive information that is transparent to everyone, a plus point in the present malaysian corporate scenario.

am not here to make a buy call for everyone to ride on.

its your own decision and i made mine, only regret is that i did not take a position earlier due to all the doubts created in various forums.

Alex Lu said...

Hi Big Sea

You may have a point there- about the issuance of Hibiscus-WB. However, I assumed that Hibiscus-WA has some kinds of protection against dilution. For example, if a company had issued a warrant and then proposes to issue bonus share, the warrant holder would be protected by adjustment to the exercise price of the warrant & sometime even getting bonus warrant too.

We don;t have sufficient information to come to a clear decision on Hibiscus-WB & its impact on Hibiscus-WA. as such, I fall back on general practice.

Thanks for posting your comment.

Alex Lu said...

Hi foowinz

You can buy the Hibiscus-wa and convert to the Hibiscus share once the qualifying acquisition has been completed. It is still pending completion.

Normally, a warrant conversion takes two weeks.

Alex Lu said...

Hi NoviceMind_Bff

Thanks for sharing your thoughts.

foowinz said...

Alex thank you very much for all clarification.