Download Hibiscus Petroleum graduated into a full

Hibiscus’ issue takes M’sian Spacs to
uncharted waters
In a remarkable turn of events, Hibiscus Petroleum’s effective stake in one
oil and gas exploration company was slashed sharply via a restructuring,
which it now claims was improperly done. For shareholders, question
marks loom large.
On Christmas Eve 2015, Hibiscus Petroleum told Bursa Securities that it had, through a
subsidiary, applied in the courts of the Isle of Man to pursue legal action against three
directors in a jointly controlled entity. And behind this announcement is what may be an
unprecedented situation for special purpose acquisition companies (Spacs) in Malaysia.
Essentially, Hibiscus Petroleum finds itself going from holding joint control in one oil
and gas exploration outfit to holding just a fraction of the stake it used to. The
implications are as yet unknown and may cause jitters among investors.
The strange tale, however, makes a dash more sense if followed from the beginning.
Recall that Hibiscus Petroleum was the first Spac listing – essentially blank-cheque
companies seeking to use initial public offering proceeds to buy itself a core business
activity – in Malaysia and so far the only one to have graduated to a full-fledged oil and
gas exploration company.
Hibiscus Petroleum graduated into a full-fledged company by undertaking the requisite
qualifying acquisition (QA) in the form of a 35% stake acquisition – with joint control —
in Lime Petroleum Plc a couple of years ago.
The other owners of Lime Petroleum Plc are Rex Middle East
Ltd (56.4%) and Schroder and Co Banque SA (8.6%), according to a regulatory filing to
Bursa Malaysia dated Nov 30, 2015. In turn Lime Petroleum Plc has 100% of Lime
Petroleum Ltd and a stake that is “subject to confirmation” in Lime Petroleum Norway
AS (LPN).
Here’s where your eyebrows may involuntarily rise. On Dec 14, 2015, Singapore Stock
Exchange-listed Rex International Holdings Limited, which owns Rex Middle East,
announced that it now controls 98.77% of LPN – up from 73.82% –following a
restructuring of the company’s capital.
According to a report by Singapore Business Times, LPN cut its share capital from 382
million Norwegian krone to 80.32 million krone by accounting for 30.9 million krone of
uncovered losses and transferring 270.8 million krone to other equity. Then 900,000
LPN shares held by Rex were cancelled and Rex then reinvested the 77.4 million krone it
received into LPN for new shares.
This leaves Lime Petroleum Plc – in which Hibiscus Petroleum has 35% – with just
3.51% compared to 73.82% previously.
In an immediate response published
on Bursa Malaysia on the same day, Hibiscus Petroleum maintains that the
restructuring said to be completed on Dec 10 as “improperly carried out” as “previously
highlighted to LPN and its officers/shareholders”.
This was followed by the announcement on Dec 24 that Hibiscus Petroleum is applying
for leave to pursue claims against Karl Helge Tore Lidgren, Simon Comina and Laurence
Keenan, three directors nominated to the board of Lime Petroleum by Rex Middle East
Ltd and Schroder & Co Banque.
The application is made under Section 175 of the Isle of Man Companies and relates to
“a breach of trust and/or breach of fiduciary duty on the part of the Subject Directors,
particularly with regard to their conduct in relation to the actions taken to effect a
substantial dilution of Lime Plc’s shareholding interest in Lime Petroleum Norway AS
(LPN) under a Restructuring undertaken by LPN”.
Hibiscus Petroleum’s managing director Ken Pereira declined to comment to KINIBIZ.
A number of questions rise for the average minority shareholder in Hibiscus Petroleum
as well as the market at large, given the relative scarcity of information as to what really
happened leading to this remarkable dilution in one company.
Among others, shareholders tracking Hibiscus Petroleum’s filings to Bursa Malaysia
would not know much detail of what sort of restructuring took place at LPN. There is
also scant information on how much was disclosed to Hibiscus Petroleum prior to the
restructuring taking place and how accurate the company thinks this information may
have been.
In other words, surely Hibiscus Petroleum had knowledge of the exercise proceeding as
a shareholder. What went wrong?
And then there are also questions on Hibiscus Petroleum’s standing as a graduated
former Spac. As the joint control in LPN forms part of its QA, what implications might
this massive dilution carry on its status now? Given it is so far the only Spac to have
graduated into a full-fledged company, we are now in uncharted waters in this respect.
All eyes are now on what happens next in this unusual turn of events. In the meantime,
Hibiscus Petroleum would do well to shed further light on the matter for the sake of its
shareholders who may well feel like they are in the dark about what is really happening.