<article>The Securities Commission (SC) of Malaysia has rejected the initial public offering (IPO) application of plantation special purpose acquisition company (SPAC) <a href="http://www.chemarapalmea.com/#about">Chemara Palmea Holdings Bhd</a>, local media reported. </article>

The Securities Commission (SC) of Malaysia has rejected the initial public offering (IPO) application of plantation special purpose acquisition company (SPAC) <a href="http://www.chemarapalmea.com/#about">Chemara Palmea Holdings Bhd</a>, local media reported. 
It is the fourth SPAC to be turned down by the regulator since the public market regulations allowed for SPAC listings in 2009.
<a href="http://www.thestar.com.my/Business/Business-News/2015/01/27/SC-rejects-Chemara/?style=biz">The Star</a> reported quoting sources that the rejection was due to the high standards the SC held for approving SPACs, as the companies were essentially cash shell companies with no business at the point of floatation.
The <a href="http://www.thestar.com.my/Business/Business-News/2015/01/27/SC-rejects-Chemara/?style=biz">report</a> also quote a source close to Chemara confirming that the listing application was rejected, and adding that the SPAC had the option to appeal or resubmit its application, and it intended to do so as soon as certain concerns by the SC are addressed.
“The business proposal is still very viable. This setback reflects the high standards of the SC and Chemara is keen to ensure all requirements are complied with,” the source told the local daily.
Chemara was the first plantation SPAC to have been proposed in Malaysia.
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The key reason Chemara did not make the cut was the non-disclosure of an internal rate of return (IRR) target in its draft prospectus, vis-a-vis successfully listed Reach Energy Bhd and Sona Petroleum Bhd which had provided their targets being between 15 per cent to 20 per cent.
“Without the IRR, investors are not provided with sufficient guidance on what value-add this management team is going to bring to the table, which is the essence of SPACs,” the report said, quoting a banking source.
Another possible rejection reason was the the lack of management credentials, and in the past too, SPACs have been rejected on these grounds. 
Chemara stated in its draft prospectus that a key achievement of one of its promoters was raising MYR1.5 billion within three weeks to fund the acquisition of Minamas Plantation in Indonesia in 2001 by the now-defunct Kumpulan Guthrie Bhd.
However, bankers questioned if this was a major feat, considering that industry talk had been that it was a straight-forward deal due to the amount of cash and assets that Guthrie had on its balance sheet then.
Yet another concern noted was whether the estimated MYR650 million proceeds to be raised from Chemara’s proposed IPO was enough to acquire plantation brownfield assets, for which prices have been on the rise in Malaysia and Indonesia.
“The plantation land in Sabah and Sarawak has surged by between RM70,000 and MYR80,000 per ha, while in Peninsular Malaysia, the plantation land price tag is about 30% higher than that of East Malaysia,” an industry expert commented.
Furthermore, it will be tricky for Chemara to source for new plantation assets in Indonesia.
Even though foreigners are currently allowed to take up a 95% stake in plantations in Indonesia, a cap on foreign shareholdings in oil palm plantations would likely be imposed in the future.
Other SPACs which have failed to meet the SC’s criteria thus far were oil and gas SPAC Matrix Capacity Petroleum Bhd, and mining SPACsTerraGali Resources Bhd and Australaysia Resources and Minerals Bhd.
The moratorium of shares placed on the promoters and initial investors of Chemara ends when the qualifying acquisition (QA) is made, or when the asset to be acquired has generated one year of operating profits and positive cash flow, if the asset being acquired is not income generating at the point of the acquisition.
However, banking sources speculated that this moratorium may have been too lax for the SC, more so because of the absence of a stated IRR target. “Due to the absence of an IRR target, the QA selection criteria becomes very uncertain for investors to gauge,” noted a banker.
The SC had tightened the rules of SPACs in 2013, which included extending the moratorium placed on promoters and the initial investors of SPACs.
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Malaysia rejects Chemara Palmea’s IPO plans

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