Sumatec finally reported its latest quarter earning of RM 6.7 Million profit. It is the 3rd consecutive quarters of profit thus it might be enough for the company to apply for the uplifting of PN17 status. It is a good news for Sumatec but is actually much expected by everyone thus I think there is nothing surprise here. The more important announcement is instead the multiple proposal which include the right issues as well as the offer for sale and among other things. The full announcement is here :
http://www.bursamalaysia.com/market/listed-companies/company-announcements/1725733
From the proposal, the most significant thing is the propose rights issue of every 1 right for every 2 shares with an attached warrant. The indicative issue price is 40 sen, derived from the 13.6% discount of theoretical ex-price of 46.3 sen. The proceed from the rights issue is for the propose acquisition of oil field in Kazakhstan. Basically the rights issue is not necessary a bad thing for 'long term' shareholders that believe in the prospect of the acquisition and willing to 'invest' even more money into the company and trust Tan Sri Halim Saad (TSHS). But for those that just looking to trades for short term profit, especially those with margin, this is certainly not a good news. This is even worse for those holding the existing warrants of the company since they are only entitle to the rights issue after they decide to convert their warrants. Warrant-A today closing price is 44 sen with a 32 sen exercise price which add to total 76 sen a share while Warrant-B closed at 44.5 sen with exercise price of 17.5 sen which add to total 62 sen a share. Of course the warrant holders can decide not to convert the warrants thus exclude themselves from the rights issue but this will hugely dilute their shareholding in the company. If they choose to convert and subscribes the rights issue then they will have to fork out substantial amount of money into this investment. One needs to seriously believes in the company or TSHS in order to do so.
The silver lining for the shareholders and the warrants holders is that TSHS seems going to invest even more money into this company. First, he is going to undertake the whole rights issue that he is entitle to. Currently he has 767,040,000 shares in the company thus he will undertake 383,520,000 rights with indicative price of 40 sen a shares which works out to be RM 153.4 Million. Then he will acquire the entire 727,272,727 shares that issues to one of the vendor for the proposed acquisition as a way of payment at 55 sen a share which amounts to RM 400 Million. Total money that he is going to pump into the company will be RM 535.4 Million. It is certainly a very big investment. He must really believes in this company.
The proposed acquisition is not exactly straight forward. The company that has the rights of the oil field is Buzachi Neft LLP, but the acquisition is not for this company instead is a company called Borneo Energy Oil & Gas Limited. Borneo is a company that only incorporated in Aug 2010 with only 2 directors with a share capital of USD 100. The company is an investment holding company that holds 100% legal & beneficial owner of the participating interest of the Buzachi Neft. Below is the financial status of the 2 company:
Borneo financial statement (source: Bursa Malaysia)
Buzachi Neft financial statement (source: Bursa Malaysia)
Yup! Both are loss making company even Buzachi Neft is producing oil at this moment. The commentaries part even stated that the auditors has declared in emphasis of matter relating to the losses, shareholders' deficit, net current liabilities recorded and breach of covenants/terms of bank loans. All these factors may cast significant doubts about Buzachi's ability to continue as going concern but for the management of Sumatec, since the SPA is free from all indebtedness so it should be alright. But what about continuous losing even producing oil? Putting so much money into a company with records like this seems risky, don't you think? I guess they must see and know something that I don't.
Buzachi's estimated oilfields reserves (source: Bursa Malaysia)
Total proved and producing reserves is 4.33 million barrels of oil (MMbbl). Proved but undeveloped reserves is 10.92 MMbbl, probable reserves is 53.62MMbbl and possible reserves is 28.85 MMbbl. So total is 97.72 MMbbl. A lot right? But PROBABLE & POSSIBLE (I really like those words) reserves is 64.47 MMbbl or 66% of the total reserves. WOW!!! How probable & possible these reserves is? I don't know, I hope they know. As for the proved but undeveloped, can they provide an estimated figure as to how much it needs to spend to get it developed and start to produce?
Well, after all these facts, is it a good news or bad news for Sumatec shareholders? I guess if you believe in TSHS then it could be good news, if not then the acquisition is something you need to digest before decide to dump even more money into the company. I suppose TSHS would not want to jeopardize his own name and risk his fortune into something he is not comfortable with unless he has other agenda or plans. Does he?
Tomorrow Sumatec certainly will be an interesting counter to watch. To buy, to sell, to hold, to convert or to subscribes, is all too complicated!
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