"IN a monumental move, government-linked investment companies (GLICs) Lembaga Tabung Haji (LTH), Koperasi Permodalan Felda Malaysia Bhd and Pelaburan Mara Bhd have taken stakes in special purpose acquisition company (Spac) Reach Energy Bhd, which is slated to be listed sometime in August"
It is my firm belief that SPAC is not a bad company, but investing in SPAC without fully understanding the nature and risk profile of SPAC is bad investing. In my previous posts, I put forward my arguments that SPAC is in essence a private equity business which could transform into a normal operating business (upon the completion of the qualifying acquisition(s)) or maintain its model as a private equity business. The perspective on the valuation and pricing of SPAC shares depend on the business model it is operating under.
In this regard, I believe that it is not wrong for any institution to invest in a SPAC as long as it understands completely the risk and rewards of a SPAC business and the investment fits its risk-return portfolio. These GLC's are managed by professional managers who would have to ensure that proper due diligence have been undertaken and they would have access to the latest information and analysis to decide on SPAC investments.
My only concern is this. I remember once I have asked an experience fund manager as to what were the key drivers for his fraternity of fund managers. One of drivers, which stuck to my head until today, was the fear of 'missing the boat'. I place my confidence and hope that this should not be the case here.
More interestingly, it was further reported by the STAR that :
“What attracted the bumi funds was the investor protection. Reach was putting in 94.75% of its funds into the trust fund, instead of the stipulated 90%. Should a QA not be executed in 3 years time, the 75 sen per share put in by the investors actually becomes 76 sen, based on the existing interest rate. Furthermore, they could trade their warrants. It was a no-lose situation,” said one banking source
I do not know why Reach is putting an extra 4.75% into the trust fund from the 90% applied by its predecessors (HIBISCUS, SONA, CLIQ). If it was driven by the regulators, then it is good. If it was driven by Reach itself, then it is great! I personally think that the amount should be 100% of the funds raised and that the rule must be applied retrospectively to the other two SPACs not making their qualifying acquisitions yet.
The capital market (via the IPO) would have given the promoters/managers liquidity, visibility and the monetary muscle to increase their wealth, not to mention the millions (in terms of worth) ascribed to their collective stake in the company. They should not need to dip into the cash of the IPO subscribers at all to survive for the next three years (which should mainly comprise salary, rental and travel). At the very least have a budget which does not include paying tens of thousands a month salary and maybe get a fixed sum from the IPO coffers.
SPAC promoters and management (that gets the shares) are entrepreneurs in my eyes; and to keep the entrepreneurs hungry to be successful and remove any executive conflict, they should not be seen as 'profiting' from the salary and benefits from the SPAC. Their reward should come from the success of the SPAC only, fair considering the other partner (other shareholders) are also banking their reward on the same.
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Disclaimer: At the point of writing the Author has shares in CLIQ Energy Berhad. Not much but got'lah'.
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