PETALING JAYA: Petron Corp has no intention of de-listing the Malaysian entity it bought into last year and still holds the view that it did not underpay for the asset.
In an exclusive email interview with StarBiz, Petron's suave chairman and CEO Ramon S, Ang said the priority was to grow Petron Malaysia Refining and Marketing Bhd, formerly known as Esso Malaysia Bhd (EMB), without having to de-list the latter. His replies are the first time Ang is speaking to the Malaysian media on this takeover deal which has courted a little controversy.
Petron had acquired 65% in then EMB in March at a price of RM3.50 which had disappointed some shareholders who had chased the stock up to RM5.84 prior to the announcement of the deal. Petron had paid a total of RM1.8bil for both ExxonMobil's listed and unlisted downstream oil and gas assets in Malaysia.
The acquisition triggered a mandatory general offer, which saw most shareholders reluctant to give up their shares, with Petron now holding 73.4% of the company, lower than the 75% mark which would compel it to address its public shareholding spread.
In response to the question of whether Petron had overpaid for the unlisted asset and underpaid for the 65% stake in the listed Esso Malaysia, Ang clarified Petron's position: Only 65% of EMB was acquired for US$200mil, the implied value for 100% is therefore about US$310mil. Petron was just one of the bidders and the price finally agreed upon and paid presented the fair value of the assets acquired.
“Moreover, it has to be considered that the major asset of EMB is the Port Dickson Refinery which has very little value on an as-is basis. Its business value based on a discounted cash flow value of income streams is also low given its refining margins,” Ang said. He is also the vice-chairman and president of San Miguel Corp, the parent of Petron and the Philippine's largest conglomerate.
He also said Petron's priority today and in the next few years was to operate and grow the business as well as execute its plans to upgrade the refinery and improve network development, among others.
“Delisting is not a need but we may consider it if there is an opportunity later,” he said.
As starters, Petron has determined to pump in an initial US$100mil to give the Port Dickson Refinery the capability to produce Euro 4-compliant fuels. However, this is still subject to a professional study commissioned by Petron.
Results of the study undertaken by an independent professional company is expected to be known by year-end and will determine and evaluate the necessary upgrade and improvements.
“This is an excellent opportunity to duplicate the success of Petron in Malaysia, a country with strong economic growth and where fuel per capita consumption is almost three times that of the Philippines. With 80 years in the oil refining and marketing business, Petron is a seasoned player with deep expertise and capability to further drive the development of the downstream oil business in Malaysia,” he said.
On Petron Malaysia's second quarter loss of RM75.09mil, Ang said business operations proved very challenging for the industry locally and internationally.
“This was brought about by the sudden drop in world prices for crude and finished fuel products, causing downstream oil players with higher-cost inventory to liquidate. Our investment is directed by a long-term view of Malaysia's continuing growth which we hope to participate in,” he said.
Below are some questions and answers with Ang:
What are the plans/vision/target for the refinery?
The aim is to operate the Port Dickson Refinery at optimum efficiency and cost effectiveness. This is the same reason why Petron is currently undertaking a US$2bil project to further upgrade and modernise the Bataan refinery in the Philippines into a full conversion plant that will expand production from 120,000 barrels per day to an optimum of 180,000 barrels per day and increase the mix of higher-value fuels and petrochemicals. The project will allow the refinery to make use of a wider range of crude oils and be able to produce cleaner fuels that will comply with stricter environmental standards in the future.
Assuming that Petron continues to be listed, there would be a matter of disclosure requirements and approvals by shareholders, this normally is the stumbling block for plans and investments and consumes a lot of time. What are your comments?
As a listed company in the Philippines with over 150,000 shareholders, Petron is used to the regulatory requirements that serve to ensure transparency and accountability. Our objective is to continue engaging our shareholders here in Malaysia so they can see the value of our programmes and make them share in our vision.
Petron now owns a major part of the downstream business in Malaysia. Would it involve opportunities in the upstream business?
We are only in the downstream business at the moment and we remain focused on growing this business.
A recent statement mentioned the rebranding of 120 service stations, but Petron now owns 560 service stations, with 10 fuel distribution terminals. What are the timeline and funds to be invested?
ExxonMobil allows us to use their brand under a three-year rebranding agreement. During this period, or earlier, we will convert 560 stations at an estimated cost of US$100mil. We opened our first Petron rebranded service station on June 15 and have nine Petron rebranded service stations to date.
You will notice that Petron's service stations are completely differentiated visually with our distinctive red and blue logos and design. But more than these, our customers will also have first-hand experience on what the Petron brand stands for innovative products and personalised services, successful partnerships built on trust, and caring for our customers.