5. INFORMATION ON OUR BUSINESS 5. INFORMATION ON OUR BUSINESS 5.1 BACKGROUND INFORMATION 5.1.1 Background Our Company was incorporated in Malaysia under the Act as a private limited company on 5 December 2007 under the name of Hibiscus Petroleum Sdn Bhd. On 20 December 2010, our Company converted into a public company under the name of Hibiscus Petroleum Berhad. The principal activity of Hibiscus Petroleum is as an investment holding company. Our Company has yet to commence business operations. We intend to list on the Main Market of Bursa Securities as a SPAC. SPACs are companies which have no operations or income generating business at the point of IPO but undertake an IPO for the purposes of raising funds to acquire operating companies or businesses.
5.1.2 Key criteria of a SPAC The key criteria of a SPAC, as provided for under the SC Guidelines, are as follows: Key Criteria Details Minimum funds raised A SPAC must raise at least RM150,000,000 through its IPO. Interest of management team Members of the management team of the SPAC must own at least 10% of the SPAC upon IPO. Management of IPO proceeds A SPAC must place at least 90% of the gross proceeds from its IPO in a Trust Account immediately upon receipt of all proceeds. The monies in the Trust Account may only be released by the Custodian upon termination of the Trust Account. The proceeds in the Trust Account may be invested in Permitted Investments. Any interest generated by the funds held in the Trust Account including interesVdividend income derived from the Permitted Investments, must accrue to the Trust Account. The balance of the proceeds from the IPO, being 10% of the proceeds, may be utilised to defray expenses related to the IPO and for working capital purposes including but not limited to operating costs, fund the search for a target company or asset and completing the Qualifying Acquisition. For avoidance of doubt, the funds from the Subscription by Hibiscus Upstream, Initial Investors’ Utilisation Amount and Subscription by the Initial Investors will not be included in the Trust Account.
Qualifying Acquisition An initial acquisition of target company(ies) or asset(s) which has an aggregate fair market value of at least 80% of the aggregate amount in the Trust Account (net of any taxes payable). 5. INFORMATION ON OUR BUSINESS (Cont’d) Timeframe for completion of a Qualifying Acquisition Shareholders’ approval for a Qualifying Acquisition Refund to dissenting shareholders Custodian Within 3 years from the date of listing of the SPAC. In the event the SPAC fails to complete the Qualifying Acquisition within the Permitted Timeframe, it will be delisted from the Main Market of Bursa Securities.
The resolution on the Qualifying Acquisition must be approved by a majority in number of shareholders representing at least 75% of the total value of shares held by all shareholders present and voting either in person or by proxy at an EGM. Where the Qualifying Acquisition comprises more than 1 acquisition, each acquisition must be approved by the shareholders of the SPAC in the same manner. The management team and persons connected to the management team must abstain from voting. Shareholders (other than the management team and persons connected to them) who vote against a Qualifying Acquisition at the EGM will be entitled to receive, in exchange for their Shares, a sum equivalent to a pro rata portion of the amount then held in the Trust Account (net of any taxes payable and expenses related to the facilitation of the exchange), provided that such Qualifying Acquisition is completed within the Permitted Timeframe. The Shares tendered in exchange for cash must be cancelled. Please refer to Section 5.1.3 of this Prospectus for the basis of computation for the Qualifying Acquisition Share Repurchase. The SPAC will secure and maintain custodial arrangements at all times over the monies in the Trust Account until the termination of the Trust Account. The roles and responsibilities of the Custodian are as follows: (i) The Custodian must hold in trust, the proceeds from an issuance of securities by the SPAC, in accordance with the Custodian Agreement, the SC Guidelines and applicable laws;
(ii) The Custodian must take appropriate measures to ensure the safekeeping of the monies held in the Trust Account. In particular, the Custodian must ensure that:
(a) Proper accounting records and other records as are necessary are kept in relation to the Trust Account;
(b) Custody and control of monies held in the Trust Account is in accordance with the provisions of the Custodian Agreement;
5. INFORMATION ON OUR BUSINESS (Cont’d) (iii) The Custodian may be provided a mandate by the management team to invest the amounts held in the Trust Account in Permitted Investments; (iv) The Custodian may only distribute and/or liquidate the funds held in the Trust Account in accordance with the provisions in the Custodian Agreement. Please refer to Section 5.1.5 of this Prospectus for the salient terms of the Custodian Agreement. Liquidation In the event the SPAC fails to complete a Qualifying Acquisition within the Permitted Timeframe, it must be liquidated. The amount then held in the Trust Account (net of any taxes payable and direct expenses related to the Liquidation Distribution), must be distributed to the respective shareholders on a pro rata basis as soon as practicable, as permissible by the relevant laws and regulations. Any interest earned from the Permitted Investments accruing to the Trust Account will form part of the Liquidation Distribution. The management team and persons connected to them may not participate in the Liquidation Distribution, except for securities purchased by them after the date of listing of the SPAC on the Main Market of Bursa Securities. Please refer to Section 5.1.3 of this Prospectus for the basis of computation for the Liquidation Distribution. 5.1.3 Basis of computation for the Qualifying Acquisition Share Repurchase and the Liquidation Distribution The basis of computation for the Qualifying Acquisition Share Repurchase (provided that such Qualifying Acquisition is duly approved and completed within the Permitted Timeframe) is as follows: y x = z Where: X= Amount per Share payable to the Dissenting Shareholder Y= Amount then held in Trust Account (net of any taxes payable and expenses related to the Qualifying Acquisition Share Repurchase) Z = Total number of Shares excluding Shares held by the Management Team, the Non-Independent Directors, persons connected to the Management Team and Non-Independent Directors and the Initiallnvestors(1) Note: (1) Except in relation to Shares purchased by the Initial Investors after the Listing or pursuant to the Public Issue. 5. INFORMATION ON OUR BUSINESS (Cant’d) In order to exercise the right to require our Company to purchase Shares under the Qualifying Acquisition Share Repurchase, a shareholder shall be required to send a notice in writing to our Company (in such format, and within such timeframe as may be prescribed by our Company from time to time). The satisfaction of the purchase consideration for the Qualifying Acquisition Share Repurchase shall be effected by our Company in favour of each Dissenting Shareholder within 7 Market Days after the Qualifying Acquisition has been fully and duly completed. Such payment to the Dissenting Shareholders shall be effected in the same manner as provided in our Articles of Association in relation to dividends. Please refer to Section 12.2 of this Prospectus for the relevant extracts from our Articles of Association. In the event that the Qualifying Acquisition cannot be completed, the Dissenting Shareholders shall not be paid and we shall search for another Qualifying Acquisition so long as it is within the Permitted Timeframe. The basis of computation for the Liquidation Distribution is as follows: B A= C Where: A = Amount per Share payable to the Shareholder B = Liquidation Amount C = Total number of Shares excluding Shares held by the Management Team, the Non-Independent Directors, persons connected to the Management Team and the Non-Independent Directors and the Initial Investors(1) Note: (1) Except in relation to Shares purchased by them after the Listing and Shares purchased by the persons connected to the Management Team and the Non-Independent Directors pursuant to the Public Issue The Liquidation Amount shall be distributed to the shareholders on a pro-rata basis as soon as practicable in accordance with the provisions of the Act and other applicable laws and regulations provided always that the Management Team, persons connected to them, the Directors and the Initial Investors shall renounce their entitlement to (and shall not participate in) the Liquidation Distribution, except in relation to Shares purchased by the Management Team, persons connected to them, the Directors and the Initial Investors after the Listing and Shares purchased by the persons connected to the Management Team pursuant to the Public Issue. THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK 5. INFORMATION ON OUR BUSINESS (Cont’d) 5.1.4 Share capital and changes in share capital Our present authorised share capital is RM25,000,000 comprising 100,000,000 RCPS and 2,400,000,000 Shares, of which 4,998,000 RCPS and 77,792,422 Shares have been issued and fully paid-up. The changes in our issued and paid-up share capital since incorporation until the date of this Prospectus are as follows: (i) Shares Date of No of Shares Cumulative issued allotment! allottedl Par and paid-up ordinary subdivision subdivided value Consideration share capital RM RM
05.12.2007 2 1.00 Cash 2
13.12.2010 200 0.01 Subdivision of Shares 2 28.4.2011 55,570,000 0.01 Conversion of RCPS 555,702 6.5.2011 22,222,222 0.01 Cash 777,924 (ii) RCPS Date of No of RCPS allotment! allottedl Par Cumulative issued conversion converted value Consideration and paid-up RCPS RM RM 13.12.2010 10,555,000 0.01 Cash subscription 105,550
28.4.2011 5,557,000 0.01 Conversion of RCPS 49,980 There were no discounts, special term or instalment payment plan in relation to the payment for the abovementioned RCPS and Shares. In addition to the above, our Company will also be issuing between 222,222,222 and up to 422,222,222 Warrants-A and between 55,570,000 and up to 105,550,000 Warrants-B comprising the following: (i) 22,222,222 Warrants-A to the Initial Investors as part of the Capitalisation of Initial Investors’ Utilisation Amount and the Subscription by the Initial Investors;
(ii) Between 55,570,000 and up to 105,550,000 Warrants-B pursuant to the conversion of RCPS held by Hibiscus Upstream; and
(iii) Between 200,000,000 and up to 400,000,000 Warrants-A pursuant to the Public Issue. The Warrants-A will be issued simultaneously in 1 series and the Warrants-B will be issued simultaneously in 1 series. Details in relation to the terms and conditions of the Warrants have been set out in Section 3.3.3 of this Prospectus. Save as disclosed above, there are no other outstanding warrants, options, convertible securities and uncalled capital in our Company. 5. INFORMATION ON OUR BUSINESS (Cont’d) 5.1.5 Salient terms of the Custodian Agreement The following are extracts of the salient terms contained in the Custodian Agreement: 1. APPOINTMENT The Company appoints the Custodian, and the Custodian agrees to act, as the SPAC Custodian for the Company in accordance with the terms of the Custodian Agreement, the SC Guidelines and other applicable laws. 1.2 The Custodian hereby confirms, represents and warrants to the Company that it is: (i) a trust company registered under the Trust Companies Act 1949;
(ii) in the list of “Registered Trustees in Relation to Unit Trust Funds” issued by the SC; and
(iii) duly qualified to act as a SPAC Custodian under the SC Guidelines. 1.3 The Custodian’s appointment shall commence on the date of the Custodian Agreement and shall continue until terminated pursuant to Clause 6 below.
2. TRUST AND COVENANTS
2.1 The Custodian declares, acknowledges and confirms that it shall hold the Trust Property in trust for our Company subject to the provisions of the Custodian Agreement. 2.2 Other than the right to require the Custodian to comply with the terms of the Custodian Agreement, our Company shall not be otherwise entitled to compel the transfer or distribution or any other dealing or application of the Trust Property or have any other entitlement or interest in relation to the Trust Property or any part thereof, except in accordance with the SC Guidelines. 2.3 The Custodian covenants that it shall duly perform all its obligations and covenants and all terms, conditions and provisions on its part to be performed as contained in the Custodian Agreement and warrants that: (i) it has the power to enter into, and perform the obligations on its part to be performed under, the Custodian Agreement, and
(ii) its obligations under the Custodian Agreement are valid, binding and enforceable.
2.4 Except in accordance with the Custodian Agreement or as directed by a competent court or authority, the Custodian agrees, covenants and undertakes not to assign, transfer, sell, charge, surrender, encumber or otherwise howsoever alienate or deal with the trust property or any part thereof or make the same subject to any burden, charge, encumbrance, liability or lien whatsoever, or agree or enter or execute any form of agreement or instrument to assign, transfer, sell, charge, surrender or otherwise howsoever deal with the trust property or any part thereof or to make the same subject to any burden, charge, encumbrance, liability or lien whatsoever. 5. INFORMATION ON OUR BUSINESS (Cont’d) 3. RESPONSIBILITIES OF THE CUSTODIAN 3.1 The Custodian shall be responsible for the following: (i) Open and maintain the Trust Account.
(ii) Deposit the IPO Trust Proceeds and the Cash Trust Assets into the Trust Account immediately upon the Custodian’s receipt of the same.
(iii) Undertake such Permitted Investments as may be instructed by the authorized person of our Company (“Authorised Person”), in accordance with the Custodian Agreement, on behalf of our Company. (iv) Ensure the prompt deposit of all interest, dividend and other income derived from (or attributable to) the Permitted Investments into the Trust Account unless otherwise instructed by the Authorised Person, in accordance with the Custodian Agreement, to invest the same in the Permitted Investments.
(v) Other than for purposes of paragraph (iii) above, not withdraw, transfer, distribute, liquidate or release any of the funds or monies deposited into (or held in) the Trust Account, except in accordance with the Custodian Agreement.
(vi) Take appropriate measures to ensure the safekeeping of the monies held in the Trust Account at all times.
(vii) Ensure that proper and complete books, statements and accounting records (including such other records as may be necessary or relevant) are duly kept and maintained in relation to all Trust Property and the Trust Account (including the transactions and dealings carried out by the Custodian in relation thereto). (viii) Ensure that custody and control of the monies held in the Trust Account is in accordance with the provisions of the Custodian Agreement and the SC Guidelines at all times. (ix) Not exercise any voting or other rights in relation to the Permitted Investments constituting the Trust Property, except in accordance with the instructions of the Authorised Person.
(x) Duly release such funds or make such payments out of the Trust Property in accordance with the Custodian Agreement.
3.2 Except in accordance with the Custodian Agreement, the Custodian shall not deal as beneficial owner on the sale or purchase of any Trust Property to or from our Company, or, without the consent of the board of directors of the Company, deal with our Company otherwise than as principal. 3.3 The Custodian’s books and records pertaining to the services provided under the Custodian Agreement shall be open to inspection and audit at all reasonable times by the auditors of the Company and/or such other duly authorised representatives of the Company, upon reasonable written notice thereof being given to the Custodian. 3.4 The Custodian shall deliver to the Authorised Person the periodic and other reports listed in Schedule 2 of the Custodian Agreement, such reports to contain the relevant information as agreed by the parties. 5. INFORMATION ON OUR BUSINESS (Cont’d) 4. POWERS OF THE CUSTODIAN 4.1 The Custodian shall have the following powers: (i) To do or omit all such acts or things as the Custodian reasonably considers to be necessary or relevant in order to perform its duties under the Custodian Agreement or to comply with any law, order, regulation or direction of any governmental or regulatory authority, without further reference to our Company.
(ii) To invest the IPO Trust Proceeds, Subsequent Rights Issue Trust Proceeds (if any), Cash Trust Assets and other monies held in the Trust Account in such Permitted Investments as may be authorized or instructed by the Authorised Person on behalf of our Company from time to time.
4.2 Unless mutually agreed by the parties, the Custodian shall not delegate its duties, responsibilities or powers under the Custodian Agreement to any other party. 4.3 Notwithstanding any provisions (whether expressed or implied) contained in the Trustee Act 1949, it is expressly declared that the Custodian shall not, to the fullest extent permitted by law, have any other rights or powers over the Trust Property or any interest, title or benefit in relation thereto save as may be expressly provided in the Custodian Agreement.
5.1 In consideration of the Custodian acting in accordance with the Custodian Agreement, the Custodian shall be entitled to charge and be paid its agreed fees and charges and such fees and charges shall be borne or paid by the Company in accordance with the Custodian’s accepted fee proposal dated 27 December 2010.
6. TERMINATION AND DURATION
6.1 Subject to earlier termination in accordance with the Custodian Agreement, the Custodian Agreement shall continue in force until the expiry of the Permitted Timeframe and all Trust Property has been duly transferred or released by the Custodian to the relevant parties. 6.2 The Custodian Agreement may be terminated by either party with a minimum of 3 months prior written notice to the other party and the SC, such notice to also set out the reasons for such termination/resignation by the first-mentioned party in accordance with the SC Guidelines. Without limiting the generality of the above, either party may give notice to terminate the Custodian Agreement if any of the following events (other than the approval of the shareholders of Hibiscus Petroleum for a Qualifying Acquisition pursuant to Article 61 C(4) of the Articles of Association or the winding-up and liquidation of Hibiscus Petroleum pursuant to Article 61C(6) of the Articles of Association (“Relevant Event”) or as may be otherwise contemplated in the Custodian Agreement) occur: (i) the other party is in breach of any material term of the Custodian Agreement and such breach shall not have been remedied within 30 days after service of notice by the first-mentioned party requiring the same to be remedied; 5. INFORMATION ON OUR BUSINESS (Cont’dj (ii) the other party shall go into liquidation, a resolution is passed for its winding up, or a receiver or official administrator or similar officer is appointed over any assets of that party (except as contemplated in the Custodian Agreement including, without limitation, as referred to in the Custodian Agreement or a voluntary liquidation for the purpose of reconstruction or amalgamation on terms previously approved in writing by the other party); (iii) if the other party ceases or threatens to cease to carry on the whole or a substantial part of its business; or (iv) if the other party becomes insolvent or is unable to pay its debts as they fall due or enters into any composition or arrangement with its creditors. 6.3 The Company shall ensure that: (a) a replacement SPAC Custodian is identified and duly appointed (in accordance with, and for purposes of, the SC Guidelines) within the notice period referred to in the Custodian Agreement; and
(b) the newly appointed SPAC Custodian immediately notifies the SC in writing of its appointment.
The termination referred to in the Custodian Agreement shall only become effective when the appointment of the new SPAC Custodian by the Company becomes effective. 7. RELEASE I PAYMENT OF TRUST PROPERTY 7.1 Subject to the instructions of our Company in this regard, and compliance with the applicable provisions of the Articles of Association and the SC Guidelines, the Custodian shall liquidate all or part of the Permitted Investments and Non-Cash Trust Assets into cash, and deposit all the monies into the Trust Account within 5 business days or such other timeline as may be agreed between the parties after receiving a notice from our Company (together with an appropriate supporting statutory declaration from the Authorised Person) confirming the occurrence of the Relevant Event. 7.2 After the liquidation of all Permitted Investments and Non-Cash Trust Assets, and the deposit of monies into the Trust Account pursuant to Clause 7.1 above: (i) where the Relevant Event relates to Article 61 C(4) of our Articles of Association, the Custodian shall release the relevant amount of monies (as calculated in accordance with Article 61 C(5) of Articles of Association) from the Trust Account for purposes of the Qualifying Acquisition Share Repurchase (as defined in the Articles of Association and insofar as it is applicable) and shall release the balance of the monies to our Company for purposes of completion of the Qualifying Acquisition in accordance with Articles of Association and the SC Guidelines;
(ii) where the Relevant Event relates to Article 61C(7) of Articles of Association, the Custodian shall release all the monies standing from the balance of the Trust Account in accordance with the provisions of Article 61C(7),
and thereafter, the trust referred to in Clause 2 above (including the holding of the Trust Account by the Custodian) and the Custodian Agreement will terminate accordingly. 5. INFORMATION ON OUR BUSINESS (Cont’d) 7.3 Upon its receipt or issue (as may be applicable) of any termination notice, the Custodian shall liquidate all the Permitted Investments and all Non-Cash Trust Assets into cash, and deposit all the monies into the Trust Account within 5 business days thereafter. All the monies standing to the balance of the Trust Account shall then be released as soon as possible to the new SPAC Custodian appointed (and in any event within five (5) business days after the appointment of the new SPAC Custodian), after which the Custodian Agreement will terminate accordingly. 8. LIABILITY AND INDEMNITY 8.1 In consideration of the Custodian agreeing to hold the Trust Property on trust under, and acting in accordance with the terms and conditions of the Custodian Agreement but subject always to Clause 8.2 below, the Company agrees to indemnify and keep the Custodian fully indemnified on a continuing basis for all monies, claims, actions, demands, costs, charges, losses, expenses and other liabilities of whatsoever nature and howsoever, including without limitation the fees, costs and expenses of legal advisors and other experts (hereinafter collectively referred to as “the Liabilities”) arising that are or may be properly and reasonably sustained or incurred by the Custodian in the performance of its duties and obligations under the Custodian Agreement or the SC Guidelines or in the due exercise, preservation or enforcement, or the attempted exercise, preservation or enforcement, of any of its duties, rights, powers, authorities or discretions vested in it under the Custodian Agreement or the SC Guidelines (save and except where such Liabilities are sustained or incurred as a result of gross negligence, fraud, breach of trust or wilful default on the part of the Custodian). The parties hereto acknowledge that the foregoing indemnities shall survive the resignation or removal of the Custodian or the termination of the Custodian Agreement, to the relevant extent. 8.2 For the avoidance of doubt and notwithstanding any other provision in the Custodian Agreement, the Custodian shall not be relieved, exempted or indemnified from any liability for breach of trust or for failure to show the degree of care and diligence required of it as a SPAC Custodian or a custodian / trustee generally and no provision or covenant contained in the Custodian Agreement should be construed as so releasing, exempting or indemnifying the Custodian. 8.3 Subject to Clause 8.2 above but notwithstanding any other term or provision of the Custodian Agreement to the contrary, neither party shall be liable under any circumstances for special, punitive, indirect or consequential loss or damage of any kind whatsoever including but not limited to loss of profits, whether or not foreseeable, even if that party is actually aware of or has been advised of the likelihood of such loss or damage and regardless of whether the claim for such loss or damage is made in negligence, for breach of contract, breach of trust or otherwise. The provisions of this Clause shall survive the termination or expiry of the Custodian Agreement or the resignation or removal of the Custodian, to the relevant extent. 8.4 Subject to Clause 8.2 above but notwithstanding any other provision to the contrary in the Custodian Agreement, each party shall not in any event be liable for any failure or delay in the performance of its obligations hereunder if it is prevented from so performing its obligations by any existing or future law or regulation, any existing or future act of governmental authority, Act of God, flood, war whether declared or undeclared, terrorism, riot, rebellion, civil commotion, strike, lockout, other industrial action, general failure of electricity or other supply, aircraft collision, technical failure, accidental or mechanical or electrical breakdown, computer failure or failure of any money transmission system or any reason which is beyond its control. 5. INFORMATION ON OUR BUSINESS (Cont’d) 9. OTHER PROVISIONS RELATING TO THE CUSTODIAN 9.1 The Custodian shall not be responsible for recitals, statements, warranties or representations of the Company as contained in the Custodian Agreement or other documents entered into in connection herewith and shall assume the accuracy and correctness thereof or shall not be responsible for the execution, legality, effectiveness, adequacy, genuineness, validity or enforceability or admissibility in evidence of the Custodian Agreement or such other documents. 9.2 For purposes of the proper performance of its duties under the Custodian Agreement, the Custodian shall be entitled to engage and consult, at the expense of the Company, with any qualified legal adviser and professional adviser selected by it and rely upon any advice so obtained and shall be protected and shall not be liable in respect of any action properly taken, or omitted to be done or suffered to be taken, in accordance with such advice. 9.3 To the extent provided by law (but subject to the prior written approval of the Company, where applicable), any corporation into which the Custodian may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Custodian shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Custodian shall be the successor to the Custodian hereunder without the execution or filing of any papers or any further act on the part of any of the parties hereto. 10. COSTS The Company shall bear all agreed costs and expenses in connection with the Custodian Agreement and the relevant matters contemplated in the Custodian Agreement, including stamp duty payable on the Custodian Agreement. 11. ARTICLES OF ASSOCIATION AND SC GUIDELINES TO PREVAIL Notwithstanding any provisions in the Custodian Agreement to the contrary, the parties shall ensure full compliance with the terms and requirements of the Articles of Association and the SC Guidelines. For the avoidance of doubt, the terms of the Custodian Agreement shall be subject to the provisions and requirements of the Articles of Association and the SC Guidelines at all times, and in the event of any conflict or inconsistency between the Custodian Agreement and the Articles of Association and/or the SC Guidelines, the provisions and requirements of the Articles of Association and the SC Guidelines shall prevail accordingly. THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK 5. INFORMATION ON OUR BUSINESS (Conf’d) 5.2 OUR BUSINESS APPROACH Whilst we shall commence business as a SPAC listed on the Main Market of Bursa Securities, we intend to establish our Company as a junior independent oil and gas E&P player in the near to medium term. In general, upstream oil and gas activities consist of the exploration, development and production of oil and gas resources. Initially, our focus will be to identify and acquire the rights to develop small and medium sized, relatively low to moderate risk oil and gas fields in the South Asia, Middle-East, East Asia and Oceania regions (“Regions of Interest”). Opportunities in other geographic areas will only be pursued on a selective basis. We shall achieve this objective by leveraging on the technical expertise of our Management Team, guided by the experience of our Board. We further expect that some of the opportunities that may be offered to us may be beyond our financial capacity to exploit and to pursue independently. In such circumstances, we will rely on long-standing relationships and knowledge of this market sector and region held collectively by the members of our Board and our Management Team to identify suitable partners so that such opportunities, albeit larger in scale than something we could singly afford, would remain open to us. 5.2.1 START-UP PHASE 184.108.40.206 Business Strategies Adopted in Identification of Prospects As a SPAC, our stakeholders will initially expect us to identify and propose an appropriate business target as a Qualifying Acquisition. Upon completion of our IPO, when the exact size of our equity base has been finalised, it is our aim to shortlist specific investment opportunities available in our Regions of Interest which meet our selection criteria, the main considerations being: • fiscal terms (i.e. royalty and tax terms) in the jurisdiction of the target asset;
• financial returns on the capital employed;
• political and security risks;
• technical, operational and sub-surface risks;
• environmental considerations; and
• the overall potential for upside.
Developers and owners of oil and gas E&P assets of various investment sizes and risk profiles operate in our Regions of Interest. Through relationship networks built up over many years of industry participation, our Management Team is generally aware of projects that are seeking investment either by way of an injection of cash or the provision of services. We are also aware that as oil and gas fields gradually decline in production over the course of their productive life, changes occur in the shareholding I ownership structure of these assets. They become of reducing interest to the early owners and developers of the fields and thus, the acquisition of such opportunities may become possible for a young E&P player willing to operate on a leaner cost structure, apply new methodologies (particularly in the area of secondary recovery) and deliver the hydrocarbons faster and in greater volumes than initially anticipated. Finally, there is a major initiative in our Regions of Interest to monetize small oil and gas fields. These types of opportunities shall also be pursued if they are believed to be economically of interest to our Company and its shareholders after the consideration of our investment selection criteria. 5. INFORMATION ON OUR BUSINESS (Cont’d) The E&P industry which is generally regarded as high risk relative to some other industries, encompasses specific opportunities with risk profiles ranging from low to high risk. In identifying our early acquisition prospects, we intend to only venture into E&P opportunities of low to moderate risk profiles. These types of opportunities are further described below. Risk profile Location of E&P opportunity Low Offshore I Onshore (Regions of Interest) Moderate Onshore (Regions of Interest)
Key criteria of E&P opportunity • Proven undeveloped reserves
• lOR (Improved Oil Recovery) I Service Agreement
• Proven basin
• Good data availability
• Good fiscal terms
• Political stability of country of location
• Stable partners
220.127.116.11 Favourable Environment for Acquisitions and Development of Opportunities Initially, our Company shall have to adhere to specific guidelines reserved for a SPAC. We are aware that we shall have to identify an acquisition prospect of a certain size and to recommend that prospect for acquisition by our Company, if it is appropriate. We believe that the oil and gas E&P industry is currently experiencing a favourable environment for making such acquisitions, particularly in our Regions of Interest. Currently, it remains an attractive prospecting environment for a target company or an asset for the following reasons: • Several junior E&P companies operating in the South East Asia region which committed to aggressive work programmes in a “land grab” prior to the Global Financial Crisis are currently experiencing difficulties fulfilling their work programme obligations. A number of such companies have utilized first round funding for early assessment of assets operated by them. They are now seeking investors for additional funds so that they are able to continue with their planned work; • Market research conducted by third parties indicate that within the Asia Pacific region, there are opportunities for acquisitions or joint ventures which fall within a price range that we could afford if our IPO is successful. These opportunities carry valuations or entry costs that are less than USD100 million. Figure 1 summarizes the opportunities available as at January 2011 and their current stages of development;
THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK 5. INFORMATION ON OUR BUSINESS (Cont’d) 5. INFORMATION ON OUR BUSINESS (Cont’d)
Figure 1: Asia-Pacific Oil and Gas Deal Availability (Source: “Deals in Play Asia Pacific, Assets for sale, M&A opportunities; JV opportunities; Exploration farm-ins; January 2011” by Demck Petroleum Services) Out of the 62 identified deals, 13 of them could be generating revenue within the next 2 years or less. At least 4 of these 13 deals are expected to generate income within a 6-month period or less. Most of the deals described above fall in an investment category below USD25 million; • Banks and private equity funds have been selective in funding companies involved in high-risk ventures. In particular, access to debt for junior independent E&P companies has been difficult; • Larger companies (integrated oil companies and large independents) are streamlining their portfolios which include the disposal of smaller oil and gas fields whilst smaller companies funded by private equity funds are also looking for exits (funds coming to the end of their investment life); • Large independents are moving their investments (which are declining in size) from our Regions of Interest to Africa and other growth areas (for medium and large scale opportunities). Their migration is leaving investment opportunities of the profile that would be of interest to our Company; and • Within our Regions of Interest, the production and consumption gap is on the increase. As oil prices move on an upward trend, each country within these regions will probably place emphasis on domestic production enhancement. Figure 2 shows the past production and consumption figures as well as the projected production and consumption rates in the near future.
25.9 8.7 26.3 8.6 27.1 8.9 27.7 9.0 28.3 9.2 29.1 9.0 29.9 9.1 30.6 8.9
Figure 2: Production and Consumption in Asia Pacific (Source: © Business Monitor International Limited; Australia Oil & Gas Report; Q1 2011 (ISSN 17483816))
We believe that a lack of resources and limited capacity to raise additional funds in a tight capital market means that credible hydrocarbon leads cannot be appraised and exploited. In addition, the productionl consumption gap building up in our Regions of Interest is expected to cause government bodies to act to develop an increased number of opportunities. Such actions may include improving petroleum fiscal terms to incentivize investment in the industry to allow the monetization of (previously) economically unviable opportunities. Consequently, well funded companies that understand the region and fulfill the relevant criteria will have an opportunity to acquire low risk opportunities with high upside potential. THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK 5. INFORMATION ON OUR BUSINESS (Cont’dj 18.104.22.168 Early Competitive Strengths We believe that several factors will have a favourable impact at the start-up phase of our Company. These factors are: (i) Extensive experience and relevant skills of our Board and Management Team Through our Directors and Management Team, we believe that we have extensive business, technical and operational knowledge and industry contacts I sources, upon which to generate acquisition opportunities. Further, our Directors and Management Team are from a multi-disciplined background and have experience in evaluating the risks present in initial opportunities, transaction development, acquisition due diligence, structuring, negotiating and closing acquisition and financing transactions in both the public and private markets. • Our Chairman, Zainul Rahim bin Mohd Zain, possesses more than 30 years of experience in the oil and gas E&P industry. An engineer by training, he held several senior positions within the Shell Group. Prior to his retirement from the Shell Group, he was the Chairman of Shell Companies in Egypt and Managing Director of Shell Egypt NV He presently is a board member of Petronas Carigali Sdn Bhd and Petronas Carigali Overseas Sdn Bhd, UKM Holdings Sdn Bhd, Bank Pembangunan Malaysia Berhad, a Trustee of the Shell Sustainable Development Fund and was an Adviser for Sime Darby’s Energy & Utilities Division from July 2008 to June 2010.
• Our Managing Director, Dr Kenneth Gerard Pereira, has 29 years of working experience of which 21 years have been in the oil and gas industry. An engineer by training, he has several years of oil and gas field experience in North Africa and Europe with a leading multinational oil and gas services company, Schlumberger Overseas S. A. He also has significant prior sector experience in the start-up and turn-around of companies engaged in the sector. He was one of the founders of the oil and gas service business of the Sapura Group of companies in 1997 involved in the growing of the company organically and through acquisitions until 2008. More significantly, he later successfully organized the acquisition and turn-around of a junior independent oil and gas E&P company listed on the Mumbai Stock Exchange, Interlink. Under his stewardship, Interlink’s performance improved substantially and as a result of several initiatives undertaken, its market capitalization increased from approximately USD3.7 million at the end of 2008 to USD35.5 million by the end of 2010. Recently, he successfully completed a doctoral programme conducted by the University of South Australia in which he researched the subject of the ‘Start-up, Survival and Growth Strategic Actions of Initially Small Oil and Gas Exploration and Production Companies’, a subject very relevant to his current activities.
• Our Director, Dr Rabi Narayan Bastia, is a world renowned Geoscientist. He has been involved in the oil and gas E&P industry for more than 30 years. Most significantly, he was a founder of the E&P business of Reliance Industries Limited, a member of the Reliance Group and is currently the Head of Exploration Management Team of their oil and gas business. The Reliance Group is one of India’s largest private sector enterprise. Dr Rabi Narayan Bastia is also credited with the successful exploration of some of India’s largest oil basins, many of them in deepwater. He has received several academic and state awards in India, the UK and the USA.
5. INFORMATION ON OUR BUSINESS (Cont’d) • Our Director, Zainollzzet bin Mohamed Ishak, has held a CEO position for 16 years. Of these 16 years, 7 were in Malaysian public listed companies. Zainol Izzet bin Mohamed Ishak is currently the Managing Director of Perisai Petroleum Teknologi Bhd. Prior to this, Zainol Izzet bin Mohamed Ishak was CEO of SapuraCrest Petroleum Berhad (“SapuraCrest”), an oil and gas services provider listed on the Main Market of Bursa Securities, where together with Dr Kenneth Gerard Pereira (who was the then Chief Operating Officer), he managed the day-to-day affairs of the company. They were both instrumental in growing and positioning SapuraCrest as one of Malaysia’s leading oil and gas service providers.
• Our Director, Datin Sunita Mei-Lin Rajakumar is a lawyer and Chartered Accountant by training and currently provides consulting services on monitoring and improving national innovation ecosystems, with her first client being the King Abdulaziz City for Science and Technology from the Kingdom of Saudi Arabia. She has had 9 years’ experience in technology consulting and managing a venture capital fund, wholly owned by MIMOS Berhad, a national research institution in Malaysia. In addition, she also has approximately 10 years’ experience in corporate finance and audit.
• Our Head of Petroleum Engineering, Dr Pascal Josephus Petronella Hos, possesses almost 10 years of experience in the oil and gas E&P industry, primarily in reservoir engineering, production technology and rock mechanics. He obtained this experience working for the Shell Group in various technical positions. He has an in-depth knowledge of the petroleum systems of the South East Asia region and more significantly, is an expert in certain secondary recovery techniques that will be useful to our Company, particularly when determining if recovery factors of oil and gas fields can be increased post-acquisition. In addition, Dr Pascal Josephus Petronella Hos is highly skilled in project management, well and reservoir management, reserves reporting, field development planning and project execution.
• Our Petroleum Economist, Ir Mohd Iwan Jefry bin Abdul Majid, has been involved in the oil and gas E&P industry for 18 years. He is an Engineer by training and received his Masters in Petroleum Engineering from Imperial College, London. He has a wealth of regional sub-surface engineering experience working for Petronas Carigali Sdn Bhd, Talisman Energy (Malaysia) Limited, Petroleum Development Oman and multinational oilfield services provider, Schlumberger Overseas S.A. He has also an extensive business network within the upstream oil and gas industry, domestically and regionally.
• Our CFO, Joyce Theresa Sunita Vasudevan, has gained more than 20 years’ of finance experience through working in multinationals, local listed companies and banking institutions. Prior to taking up this assignment, she was the CFO of a private entity, responsible for the overall financial management of several companies. Her other experiences cover areas of audit, corporate finance, business planning and strategic and operations planning.
Please refer to Sections 7.1.2 and 7.2.3 of this Prospectus for the full profiles of our Board and Management Team, respectively. 5. INFORMATION ON OUR BUSINESS (Cont’d) We believe that the combination of the academic skill sets of our Board and Management Team, their operating and technical experience, corporate and funding backgrounds, in addition to their extensive network of contacts in the oil and gas sector, provide our Company with a valuable pool of resources upon which to identify the right opportunities and to grow a profitable business. (ii) Access to funds Our Management Team believes that our status as a well-financed public listed company with access to the equity markets may give us a competitive advantage over entities having a similar business objective as ours when acquiring a target company or asset with growth potential on favorable terms. Further, our listed status and capital raised will facilitate easier access to the debt markets. (iii) Risk Management We intend to be a junior independent oil and gas E&P company. Understanding how to find oil and gas deposits in commercially viable volumes and developing the most optimum method of extracting that oil or gas will be our core competence. In our early years pursuant to the completion of the Qualifying Acquisition, risk management shall be important and we intend to establish a Risk Management Committee led by a competent and experienced Board member to focus on this element of the business. Our focus shall be to utilise our technical knowledge and experience to build our Company such that it achieves a financially resilient position with a balanced business risk profile. We also intend to outsource activities and services which are not our core competence, particularly if we utilise such services on a sporadic basis and if there are commercial risk factors that merit such actions. 22.214.171.124 Investment in new technologies Our Management Team is aware of emerging technologies that will act as game changers to the oil and gas E&P industry. A key strategic initiative pursuant to our IPO will be to position our Company to license, own or collaborate in some manner with the developers of such technologies so that they may be applied in our Regions of Interest for the benefit of our stakeholders. Having a suitable ‘right to use’ such technologies may also provide us with a strategic advantage when competing with other parties to secure oil and gas assets. In the area of technology acquisition, the type of technology we shall prioritise will be for improving the recovery factor, reducing the time to first oil, unlocking new resources and increasing the efficiency of production facilities rather than technologies that result in cost reduction. 126.96.36.199 Prospective Target Companies or Assets As at the date of this Prospectus, our Company has not identified any target company or asset on which to concentrate our search for a Qualifying Acquisition and accordingly, has not entered into any agreements whether written or oral, binding or non-binding with any parties. In addition, we have not signed non-disclosure agreements with any potential target companies or assets in the oil and gas E&P industry for information to evaluate the said companies or assets. While we have not yet identified any acquisition candidates, we believe that our Management Team will propose the acquisition of a target company(ies) or asset(s) within the stipulated time frame. In addition to the competencies and contacts of our Management Team, we may retain independent consultants and advisors with experience in the identification and evaluation of suitable acquisitions to assist us. 5. INFORMATION ON OUR BUSINESS (Cont’d) In evaluating a prospective target company or asset, our Management Team will conduct the necessary business, technical, operational, legal and accounting due diligence on such target company(ies) or asset(s) and will consider, among other factors, the following: • level of proven reserves;
• data availability;
• fiscal terms;
• political stability;
• terms of service agreements in place (if any);
• regulatory environment;
• growth potential;
• experience and skill of operators / partners;
• capital requirements; and
• stage of development of the hydrocarbon assets.
These criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular acquisition will be based on the above factors as well as other considerations to the extent regarded relevant by our Management Team. In evaluating a prospective target company or asset, we will conduct extensive due diligence reviews which will encompass, among other things, meetings with incumbent operators, partners and/or management, where applicable, and inspection of facilities, as well as review of operational, financial, legal and other information which will be made available to us. We will also seek a valuation of the acquisition target from an independent industry expert. 5.2.2 GROWTH PHASE 188.8.131.52 Business Strategies Adopted to Ensure Growth After the initial Qualifying Acquisition, we believe that there will be initiatives and strategies which we would have to consider for implementation to ensure the long term business continuity and growth for our new venture in the oil and gas E&P environment. The key initiatives are: (i) Continued replacement of reserves Our primary objective shall be to ensure that our future reserves are being replaced at a rate faster than they are produced and at a relatively low cost. Growing our future reserves will ensure long term business continuity and enhance shareholder value. Our team will continually assess our Company’s reserves replacement ratio and ensure timely actions are taken to maximise this ratio without embracing excessive risk. Such strategic actions could involve, but are not limited to, a combination of the following steps: • reprocessing and interpretation of data for future assets to be owned;
• enhancing the producible volume and/or extending the producing life of the assets;
• acquiring further assets either through acqUisitive or licensing processes;
• embarking on infill drilling programs to capture stranded pools of hydrocarbons;
• debottlenecking plant and facilities to enable enhanced production; and
• introducing new technologies which are implemented by “farm-in” partners to assist in the exploration, development and exploitation of high potential assets.
5. INFORMATION ON OUR BUSINESS (Cont’d) (ii) Pursuing a balanced portfolio of assets Continued access to the required quantum of capital is critical to the long term growth of our Company. Our long term strategic objective is to achieve a balanced portfolio of assets, a situation in which cash from on-going operations will be sufficient to return dividends and fund new ventures during their early stages. Achieving a balanced portfolio of assets will also spread the risks associated with any single project (owned by our Company) not performing to expectations. (iii) Safe Operations It is critical that our Company executes its operations safely, utilizing industry accepted best practices which are also friendly to the environment. In this respect we have developed policies and principles which shall be implemented at the appropriate time. THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK