IPO : Petronas Chemicals Group Bhd

Petroliam Nasional Bhd (Petronas) is looking to list its petrochemical arm Petronas Chemicals Group Bhd on Bursa Malaysia’s Main Market, with the national oil corporation remaining as Petronas Chemicals’ controlling shareholder following the initial public offering (IPO).

The prospectus exposure filed on the Securities Commission (SC) did not state how much Petronas Chemicals intended to raise or specify a time frame for the IPO to be completed. Market speculation is that the IPO may raise about US$2 billion (RM6.24 billion).

Industry observers say it is likely to list at a price earnings multiple of around 15 times earnings, similar to what analysts are expecting in the coming listing of Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE).

Petronas Chemicals, which is the umbrella company for Petronas’ 22 petrochemical-related companies, has an authorised share size of 15 billion shares and an authorised share capital of RM1.5 billion.

It had merged 22 chemicals companies to form the new group. Some of these companies are joint ventures with leading chemical players in the world, including BASF, Idemitsu and Sasol.

Petronas Chemicals is the vehicle that will own Petronas’ share in all the joint ventures (JV). There will not be any change in shareholding of the JVs. That will remain business as usual. It is only Petronas Chemicals, which is Petronas’ 22 companies, made up of wholly or majority owned subsidiaries, and a few associate companies that will list.

There has not been any intention on the part of the joint venture parties wishing to swap their shares for shares in the soon-to-be-listed Petronas Chemicals.

It has been reported that BP Plc, seeking cash to help pay for the worst US oil spill, had agreed to sell its Malaysian chemical assets to Petronas to focus on projects in China and India.

BP will sell its 15% stake in Ethylene Malaysia Sdn Bhd and 60% interest in Polyethylene Malaysia Sdn Bhd for US$363mil (RM1.2bil). Both companies are part of Petronas Chemicals.

The final retail price will be determined after the institutional price is fixed on the price determination date and will equal the lower of the retail price and a percentage of the institutional price, subject to rounding to the nearest sen.

The joint global coordinators and joint bookrunners for the IPO are CIMB Investment Bank Bhd, Deutsche Bank AG (Hong Kong branch) and Morgan Stanley and Co International plc. CIMB Investment Bank is also the principal adviser and managing and retail underwriter.

For the year ended March 31, 2010, Petronas Chemicals posted a net profit of RM2.59 billion on the back of RM12.2 billion in revenue. The group had total assets of RM26.89 billion and reserves excluding minority interests of RM17.07 billion as at March 31, 2010.

For the same period, Petronas Chemicals’ gross profit margin was 29.8%. The petrochemical industry’s profit margins have historically been cyclical, depending on the changes in supply and demand, as well as the volatility of international market prices for petrochemical products.

Under the IPO, Petronas Chemicals is offering for sale existing shares to institutional and retail investors, as well as the public issuance of new shares to Malaysian, foreign institutional and selected investors at the institutional price.

Under the institutional offering, a portion of shares would be available to Malaysian institutional and selected investors as well as bumiputera investors approved by the Ministry of International Trade and Industry. Part of the institutional offering would also be placed out to institutional and selected investors outside the US, and cornerstone investors.

As for the retail portion, an unknown percentage of the offer shares would be set aside for Malaysian citizens and bumiputera individuals, companies, cooperatives, societies and institutions. Apart from that, a portion of the offer shares has been reserved for eligible directors and employees of Petronas Chemicals and Petronas as well as eligible customers and others “who have contributed to the success” of the group.

In the draft prospectus, Petronas said the listing of Petronas Chemicals was to gain better access to funding in the capital markets, which would increase the company’s financial flexibility to pursue future growth opportunities.

Petronas Chemicals intended to strategically increase its production capacity through enhancements to its existing facilities and potentially through investment in new facilities.

Petronas Chemicals also intended to examine the possibility of adding new plants and facilities in Malaysia to further capitalise on the country’s advantages as a petrochemical production hub.

It may also review opportunities to expand its production capacity outside Malaysia. In particular, they are studying the possibility of developing a greenfield ammonia and urea production facility that would be supplied with natural gas feedstock available off the coast of East Malaysia.

Petronas Chemicals’ IPO is one of the two listings eyed by Petronas this year. The other is Petronas subsidiary MISC Bhd’s heavy engineering arm Malaysia Marine and Heavy Engineering Sdn Bhd (MMHE) Petronas’ other listed companies are Petronas Dagangan Bhd, Petronas Gas Bhd, and KLCC Property Holdings Bhd.

Petronas Chemicals, formerly known as Kuantan Terminals Sdn Bhd, is the leading integrated petrochemicals producer in Malaysia and is among the largest in Southeast Asia.

The group is primarily involved in manufacturing and selling a range of petrochemical products including olefins, polymers, fertilisers, methanol and other basic chemicals and derivative products.

With over 25 years of experience in the industry, Petronas Chemicals has a total production capacity of over 11 million tonnes per annum. It operates mainly in Malaysia and the Asia-Pacific.