HHG Capital (NASDAQ:HHGC) has entered into a definitive agreement to combine with commodities trader Perfect Hexagon.

Malaysia-based Perfect Hexagon provides commodity trading and financing services with a focus on base and precious metals.

The combined company is expected to trade on the Nasdaq under the symbol “PHGL” once the deal is completed in the fourth quarter of 2023.

Transaction Overview

HHG Capital has about $35 million in its current trust, which it plans to supplement with a PIPE.

Perfect Hexagon shareholders are to roll 100% of their equity into the new entity and the company’s co-founders have agreed to a one-year lock-up.

The parties have not yet released their merger documents or an investor presentation, but HHG’s profile page will be updated once additional information is made available.

Quick Takes: Perfect Hexagon got its start in 2014 as a single office handling transshipment and trades in base metals.

But, over time it began working with commodity trading houses and new doors were opened for it when it became a member of the Singapore Bullion Market Association – one of the region’s major hubs for precious metals trading.

Over the past two years, it has executed about $1 billion in transactions and achieved an annual turnover of $1.5 billion. What it’s take from all of that activity is somewhat unclear, however.

Much of what Perfect Hexagon does is facilitate metal trades and it has done so in 15 jurisdictions with offices in Malaysia, Thailand, China, Singapore, Australia, Bolivia, and London. But, the fees from each individual trade are likely small.

The company likely takes in a much higher margin in the financial services it manages for clients including hedging and trade finance. Perfect Hexagon describes itself as using finance products to “capture higher profit margins and entrench ourselves with our customers and suppliers by sharing the profits with them.”

But, whether these financing relationships are based on pure interest-based terms, royalties, or some other mechanism to share profits, the company’s website does not specify.

Beyond metals, Perfect Hexagon does find itself holding onto inventory when it comes to energy.  As a part of its hedging and risk management services across the resources space, it sources and supplies petroleum products itself. It sells these off both via long-term contracts and on a spot basis.

Recently, it has gotten into trading palm oil as well out of Southeast Asia and has started trading carbon credits. It is among several pending de-SPACs that have pointed their existing business model towards a means of measuring and monetizing a company’s carbon exposure.

But, the actual trading of carbon credits is an area that could see more regulation in the future. The SEC has proposed new rules for carbon disclosure, and more changes could be coming.

This twin focus on shipping and offering sustainability benefits for clients draws some similarity to fellow Southeast Asian de-SPAC Caravelle (NASDAQ:CACO). Caravelle developed technology for drying wet bulk lumber in transit aboard ships and crediting the shippers and suppliers with carbon credits.

It similarly offered scant details on its business on announcement, but has since filled in some information gaps since closing its deal with Pacifico in December 2022. Despite announcing $200 million in sales in 2022 and $40 million in income, its share price has nonetheless plunged.

At any rate, Perfect Hexagon considers its differentiation in the commodities trading space as being its ability to offer tailored arrangements to individual customers by leveraging its contacts across multiple levels of the metals and petroleum supply chain. But, outside of that, the company’s materials leave little information on its business model.

Perfect Hexagon also makes reference on its website and in the announcement press release to its “strong capital base”, but does not elaborate on how it is sourcing this capital.

Without even a pro forma enterprise value to work with, it appears investors may have to wait for HHG’s first S-4 to get a better read on this business.