Thursday, April 15

Petronas Chemical’s divestment in polymers unit a positive devt

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KUCHING: Petronas Chemical Group Bhd’s (PCG) move to divest 50 per cent of its stake in its polymers unit – PRPC Polymers Sdn Bhd (PP) – has been deemed as a mildly positive development by analysts at AmInvestment Bank Bhd (AmInvestment Bank).

In a filing on Bursa Malaysia on Monday, PCG announced that it has entered into a share purchase agreement to dispose of half of its equity interest and shareholder loans in PP to Saudi Aramco’s wholly-owned Armaco Overseas Holdings Cooperatief U.A (Armaco Overseas) for RM3.8 billion in cash.

According to PCG, the rationale for the divestment is to share project risk with Saudi Aramco as an equal joint venture partner in the mega infrastructure project which is still in construction phase and remains on high risk until its estimated completion in 2019.

The total divestment consideration to Armaco Overseas is 50 per cent of the total project costs incurred up to the closing date.

Based on earlier announcements from PCG this year that Saudi Aramco would be investing in a 50 per cent stake in one of PCG’s units in Johor, the bank speculates that the divestment announcement is regarding the group’s Pengerang Integrated Complex (PIC).

Viewing the development as mildly positive, AmInvestment Bank said the move would allow PCG to diversify its risk profile with a lower equity stake in PP and the over US$1 billion capital expenditure (capex) left to be spent on the PIC.

Besides this, the bank is also positive on the tie up between the two groups as PCG would be able to secure feedstock supplies for the PIC as Saudi Aramco will be selling 70 per cent of PP’s crude needs.

“PCG could also leverage (on) Saudi Aramco’s expertise in integrated petrochemical projects, which also opens up future strategic joint-ventures,” AmInvestment Bank added.

While the divestment is not expected to lead to any significant gains or losses, the bank has decided to lower the group’s FY19F earnings by 4 per cent as the potential returns from the commencement of the PIC operation will be cut by half.

That being said however, looking forward, the bank is anticipating the group’s product prices to see an improvement with Brent crude oil prices trading above US$50 per barrel as they have a close correlation with olefins and derivatives when compared to the flat prices of naphtha and urea in 2QFY17.

“Nevertheless, we expect PCG’s 2HFY17 earning outlook to be stable on flattishing production volume as the ramp-up of the 1.2 million tonne capacity Sabah Ammonia Urea project could be largely offset by plant turnaround activities for the existing optimal glycols, ammonia and a methanol plants which could cause overall utilisation rates to drop below 90 per cent,” guided the bank.