I really don’t like focusing on just one topic but since there are a lot of interest and this could affect the other SPACs as well, I will write another piece (hopefully the last piece) on SONA.
Drama in EGM offers exit route
By now you should know that the EGM is adjourned and will only happen within the next 30 days. In my opinion, this is the last period for SONA warrant holders to exit at a decent price.
Let’s be frank, announcing a proposal for capital reduction (provided QA succeed) on last Friday was way too late. One couldn’t help but suspect if the management, from the votes they have received before the EGM, already knew it was a lost cause. So by announcing it late and adjourn the EGM by claiming that shareholders need more time to consider, they buy themselves another round of voting (since they are gonna lost the initial round anyway)
It’s like playing video games with your sibling. When they are about to lose, they would just hit the restart button. There’s no guarantee that they could win after it restarts but they know if they carry on, they will lose. But it annoys and frustrates you to no end. Thankfully I am not one of the shareholders who made it all the way to the EGM just to witness this fiasco.
SONA WA survive for now but for how long
There were much optimism among the WA holders after this adjournment. They are now claiming the QA will go through but sadly, I still think the QA will FAIL. Warrant holders are thinking from their perspective when in actual fact they should be thinking from the mother shares’ shareholders’ perspective (since warrant holders have no right to vote). And from the shareholders’ perspective, the odds of QA going through has not changed.
Capital reduction changes nothing
If the management thinks that capital reduction could be a game changer, sorry to bust their dreams but it’s not happening.
The group of investors that the management are targeting are those that that are likely to vote NO in the EGM, who are mainly institutions/retail investors that are targeting their cash in the trust account. Why would they want that 7c when they could have access to 48c instead?
Imagine if your ancestors left you a RM48m trust fund that is maturing soon and you have been waiting for a few years to tap that whole amount, suddenly your trust fund manager came up to you and say please let us manage your money for a few more years to grow it (and after that half of the trust fund will be shared with other distant relatives). In the meantime, I will be nice and release RM7m back to you.
I don’t know about you but depending on my mood, my reaction would range from asking him to go fly a kite or meaner words. It’s my money you are talking about, don’t sound like you are doing me a favour.
I know some of you may be wondering, what about the management then? Have we consider their efforts, their feelings? Sadly, from the first day of listing, the company legally belongs to shareholders now, not management. Are shareholders’ interest and company’s interest always align? Definitely no, but unfortunately in capital market’s term, shareholders’ interest need to prevail (that’s a topic for another day).
Institutional investors are the key
There is no doubt that to garner 75% vote for is a high hurdle. There is little room for error. If the institutional investors vote no, it’s game over. Even if they vote yes, the company still has to convince the remaining skeptical shareholders.
My guess, institutional investors will still vote NO. Why? Please refer to my previous article where I have already detailed my reasoning.
Who will vote YES then
Of course there will be groups who would vote YES.
They are mainly those that:
(i) are related and aligned to the management; or
(ii) owns both mother share and warrants; or
(iii) claims or are genuinely in for the long term prospect
The first category of course is biased. Second category are emotionally bias as well as they are voting yes because they know if QA fails, part of their holdings will die. It is not a rational decision if they vote YES mainly to preserve their warrant. However, by voting YES, you exposed your mother shares instead. I will show you why in the section below.
The third category is controversial. Everybody is entitled to their own view. But my view has always been that SPAC’s long term future is bogged down by the huge number of shares and warrants. The details again you can see in my previous article. If you are positive on oil and gas long term, there are plenty of oil and gas counters who are now much cheaper in terms of valuation (thanks to the crude price). Is it wise to stick with SONA?
Reap what you sow
Here’s what you can get from SONA for different scenarios (depending on your actions)
If QA fails:
Shareholders’ who vote YES: You are entitled to about 48c liquidation value or you could sell it at open market until delisting (likely to be capped at 47.5-48c)
Shareholders’ who vote NO: You are entitled to about 48c liquidation value or you could sell it at open market until delisting (likely to be capped at 47.5-48c)
Warrant holders: Sadly it’s the end of the road, you will be lucky to get 0.5c
If QA succeeds:
Shareholders’ who vote YES: You are not entitled to share repurchase but could sell it at open market
Shareholders’ who vote NO: Your shares will be repurchased by the company at around 48c after the QA is completed
Warrant holders: It’s the best case scenario for you. As now the warrant is trading at a discount (exercise price is 35c), if QA succeeds, discount should narrow but the key factors remains - the mother shares’ price
How will mother share move after EGM
For failure scenario, the outcome is simple and straightforward. Shareholder’s get back their 48c and warrant holders get nothing. Company close shop and everybody move on. But if it succeeds, all valuation parameters will change.
If you did not vote NO during the EGM, you are no longer entitled to the share repurchase provision and you no longer have access to the cash in the trust account. In other words, there is no longer a FLOOR in the price for the mother share. The market would start to value SONA as an O&G company with an oilfield in Australia. Is it still worth 45c and above? That depends on your valuation. Could it drop below 40c or even 30c? My answer is why not. You can’t touch the cash anymore, the arbitrage window is closed and if market values O&G counters at such low PE and PB right now, why should SONA be any different? By voting QA through, you might save your warrants but kill your mother share instead.
My conclusion, SPACs, barring arbitrage opportunities, are poor investments, likewise with their warrants, regardless if the QA passes or fails.
# While the author understands the management is simply doing this to avoid the end of their career, he felt for those who spent time and cost to make it for the EGM, just to realise they will not get an answer or conclusion. The same frustration he felt when he watched the Hobbit 1 & 2.
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Project IRR more than 15% but may not be the case for normal shareholders. Dilution kicks in once the acquisition is approved
project IRR 15% on US$25 million investment
but what is the IRR on 1.4 billion shares 0.5 billion warrants?
management dare not tell you.
good point mentioned by hpcp and Desa20201956. Nobody highlighted about the diluted project IRR figure. Definitely less than 15%
SOna is so complicated, there are other fishes out there.
yeah one smart aleck want to teach others
stupid people think they are smart
wasting time and energy writing rubbish
914601117 it is not really complicated, just stick to the basics. those interested to know more should read the relevant chapters in SC's Equity Guideline. it's not long but you will understand better after that
I'm not that smart, but should be smarter than those who can't string 2 paragraphs of constructive opinion of their own while dismissing others' efforts. disagree? then for once maybe write an article or some actual comments which can help others. that way everybody benefits
I don't have much time putting so much time and effort in this counter. I am more into stocks which make at least RM 20m over 2 years and preferably in mass consumer sectors with minimum dividend yield 4%.
@914601117 now may be a bit late. but previously i only spent about an hour on the guideline, check the amount of cash in the SPAC trust accounts then project them. After buying, no need to worry, if dip then buy more. Gave me about 10-15% return now. It is a rare investment which you know for almost 90% certainty of its fair value regardless of how the market move. Best investment for me so far taking into account the time and effort needed
When you write anything that isn't positive to someone's interests, it's a sure thing that he will get offended. In this case, speculators who holding on to Sona-W. Some have very big holdings, going after a bonanza OR bust. Have to admire them for their courage. But if one is afraid of hurting others' feelings and offending them, one can never write. Because either way, someone somewhere will always have a different opinion. Or want to hear what's comforting to him.
This is your blog - YOU decide what to write about. If someone disagrees, he should write a comment that rebuts the points here. Or just keep quiet and move along. Attacking someone whose opinion is different without offering any substantial counter argument is childish and doesn't reflect well on the writer. We must be brave and willing to hear different views if we want to improve our results in the stockmarket.
@Mat Cendana fully agree. that's why I am open to constructive criticism. anyone can post your opinion on what's wrong with the article or maybe areas that I have missed. my main motivation for writing this 2-part article is not to belittle those who bought the warrant but to highlight the danger of SPAC warrants to those that are thinking of buying
by the way, if anyone wanna complain why I only write this now. fyi I only started this blog 3 days ago and these are my first 2 articles. better late than never
Jayloh...u have it on the general metting ??
Do u know who the first congress extended comments?
Why want to vote twice time at the same questions?
Why the result first and second vote big drop?
This just the focus of the qa result.........
If u understand cleary....maybe u will say the qa sure pass. Same like me say.......
Congulation for the sona wa holder, got the better future.....
Yours should not be complains jahloh, conversely should thanks jayloh...jahloh help yours get the sona wa be the lowest price....
Jayloh well done with the article. You persented your points clearly and I agree with you. For those bashing Jayloh, instead of insults maybe you guys should come out with some counterviews.
As it stands I believe in 30 days it's RIP to sona-wa, just like cliq-wa.
i select to support xiong yan .... if qa sure fail like jayloh say.....now the price sona wa is 0.005...no need wait more 30day....now all the holder sona wa
stupid????thank xiongyan ...
all the think can count,no the loser at the world stock already....lol
2030 sona wa still alive,,,
still carry on sona wa as i will.....
Na zhou .... after 30 we can cheers....
U just buy and kept sona wa until 30... my uncle working at sona talk to me...two major shareholders and board director sona on the plate privately...just left litter problem discauting only....
If i got more new about sona i will email you.... dont give the changes pass...
thank u very much first.... u no need explain me many,, just talk buy or sell only .....i 10000000pcent believe u,, i earn the counter packson many many... i no worry...
just telling me buy or sold...( •ิ_• ิ)
We are friend forever.... what i can help i will.........
Monday buy something minitex wa.....
the price 3cent isnt?
okok i know the means
wawa thank first
Ok i go first ...something to do now bye
okok bye ...if want to find me'' cal or message the num that day i give only bye
Another smart aleck...