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World’s Biggest Wealth Fund Among Reach Energy Investors

Malaysia’s Reach Energy Bhd. has attracted investors including Norway’s $890 billion sovereign wealth fund in an initial public offering to fund its acquisitions of oil and gas fields.

Norges Bank Investment Management, the world’s largest sovereign wealth fund, and Malaysia’s pilgrim fund will invest in the 750 million-ringgit ($237 million) IPO, Managing Director Shahul Hamid Mohd Ismail said in a July 21 interview. Norway’s wealth fund will own a substantial stake in the special-purpose acquisition company, he told reporters today.

Rising energy demand is spurring companies such as Reach Energy to buy and develop smaller oil and gas fields ignored by their larger international counterparts. Malaysia’s Sona Petroleum Bhd., also a special-purpose acquisition company, finalized an agreement this week to buy a stake in two Thai oil and gas blocks of U.K.-based Salamander Energy Ltd.

“The No. 1 and single immediate plan is to get our qualified acquisition,” said Shahul, 64, a former Royal Dutch Shell Plc executive who had managed exploration and production assets in Brunei and the Malaysian states of Sabah and Sarawak. “With the confidence of these institutions, this paves the way for us to grow the business.”

Blank Check

Special-purpose acquisition companies, or SPACs, are known as blank-check entities as they sell shares to raise money to buy existing business that they haven’t yet identified. Investors bet on the deal-making skills of the shell company’s executives, who must find a target within a predefined period or return funds they had raised.

Kuala Lumpur-based Reach Energy is searching for oil and gas assets in the Asia Pacific region, where demand for energy has spurred 656 such acquisitions in the six years through 2013, the company said in its prospectus today. Of that, 578 purchases cost below $250 million, which is within the range Reach Energy plans to raise, it said.

“There are healthy transactions for assets in our range,” Shahul said. “We want to do it as soon as we can.”

Reach Energy will sell 1 billion shares at 75 sen each, according to its prospectus, of which 20 million are for the public. The rest are for institutional investors such as Koperasi Permodalan Felda Malaysia Bhd. and selected individuals, he said.

Cornerstone buyers include state-run pilgrim fund Lembaga Tabung Haji, Hong Leong Asset Management Bhd., CIMB-Principal Asset Management Bhd., MTD Capital Bhd. and Chua Sai Men, son of Malaysian tycoon Chua Ma Yu, according to the prospectus.

Malaysian SPACs

Norway’s wealth fund owns stakes in Malaysian SPACs Sona Petroleum and CLIQ Energy., data compiled by Bloomberg show. The fund, in a strategy document released last month, said it was boosting its staff to cope with increased investments in real estate and is preparing for more investments in assets “with income streams that grow in line with the global economy.” The wealth fund declined to comment on the investment, said spokeswoman Line Aaltvedt.

Reach Energy will be the fourth Malaysian SPAC. Sona Petroleum raised more than 550 million ringgit last year. Other global SPAC creators include Tony Hayward, former CEO of BP Plc whose Vallares Plc raised about $2.2 billion in 2011.

International oil companies have left many smaller oil and gas discoveries undeveloped and relinquished fields back to the governments due to uncertainties in oil reserves and higher development costs, according to Reach Energy’s prospectus.

This opens up more opportunities for smaller independent operators, Shahul said. While the company will acquire an asset that gives it an internal rate of return of 15 percent, that’s “just a baseline,” he said.

“We want to deliver more than that with our acquisition,” he said.

After the IPO, Shahul and the management will hold a combined 20 percent stake in the company. They are investing 20 million ringgit in the stake and won’t be allowed to sell it until Reach Energy shows at least one year of operating revenue, he said.

“We are locked in, and we have nothing until we show results,” Shahul said. “We have skin in the game.”

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