Monday 18 October 2010

Petronas Chem IPO priced at RM5.05-RM5.20

PETRONAS Chemicals Group Bhd (Petronas Chemicals) is likely to raise US$4.2 billion in Southeast Asia's biggest ever initial public offering (IPO) after setting an indicative price range for the float, analysts said.

The unit of Malaysian oil giant Petroliam Nasional Bhd (Petronas) indicated at a briefing it is likely to price its IPO at RM5.05 for retail investors and RM5.20 for institutions, analysts who attended the briefing in Kuala Lumpur said yesterday.

The IPO comes as Asian capital markets are seeing a flurry of multi-billion-dollar deals, helped by a flood of liquidity, low interest rates and strong economic growth.

Petronas Chemicals' IPO is set to exceed Maxis' US$3.3 billion IPO last year and also raise more capital than the proposed listing of another Petronas-linked vehicle, Malaysia Marine and Heavy Engineering. It follows Singapore wealth fund GIC's logistic unit's US$3 billion IPO and may overlap with American International Group's planned listing of its Asian life insurance business AIA in a deal worth over US$15 billion.

The IPO comprises 2.48 billion new and existing shares.

Analysts, who requested anonymity as they were not authorised to speak to the media, were divided on attractiveness of the valuation for the chemical group, which would be between 15 to 16 times 2011 earnings based on the indicative price.

"Compared to its peers in the Middle East, which are valued in the mid-teens, Petronas Chemicals' performance and valuation is on par," one analyst said.

The analyst expected the price of the share to be near the 20 times PE (price-to-earnings) mark upon trading owing to the "Petronas premium" - the additional benefit of having Petronas as a parent.

"The cheap feedstock from Petronas puts Petronas Chemicals in a pretty good position," she said.

Other analysts found the valuation too expensive, owing to the inherent volatility of the sector.

"It's very, very rich," said another analyst. "These businesses are intrinsically linked to the price of oil - you cannot run away from the volatility." Preliminary numbers from analyst models attribute a RM0.30 earnings per share to the company for 2011, and RM0.32 for 2012. The models also peg a rough RM2.10 of net tangible assets per share. - Reuters