| Yawning
Bread. 7 June 2009
Singapore Petroleum sold to PetroChina
|
|
||
|
Besides its core business as an oil refiner, SPC has been involved in exploration and production in the last few years in partnership with other parties. In its 2008 annual report, SPC said that it had interests in ten oil and gas fields across East Asia and Australia, producing 3.11 million barrels of oil equivalent. SPC also has interests in three natural gas pipelines supplying Singapore from Natuna and Sumatra, Indonesia. That said, SPC was not a subsidiary of Temasek. It was only an indirectly-held associate company through Keppel Corporation. Temasek owns about 22 percent of Keppel, being its largest single shareholder, and Keppel owned a controlling 45 percent stake in SPC. That 45 percent stake was the block sold to PetroChina. The percentages are high enough to indicate that the deal had the blessing of the Singapore govenrment.
PetroChina paid S$1.46 billion (about US$1 billion at current exchange rates) for the stake, based on S$6.25 per share. This price was a vast improvement over the traded price of SPC in the months leading up to the sale, and represented a price-earnings ratio of about fourteen.
Interestingly, it was its downstream operations that did poorly. Its exploration and production activities contributed about half of 2008's operating profit, and about 40 percent of profit after tax and minority interests.
Did Keppel and Temasek not have any confidence that SPC's 2009 and 2010 prospects would be better, with the gradual recovery of the world economy? Did it think that the offer from PetroChina was too good to refuse? Indeed, its first quarter 2009 unaudited results looked quite dismal. Revenue was 47 percent down from the same period 2008, gross profit 13 percent down and net profit 44 percent down.
Of course demand was weak and refining capacity utilisation was an unhappy 93 percent. Worse, it managed a refining margin of only S$4.50 per barrel in 1Q 2009 compared to S$7.00 per barrel in 1Q 2008. SPC also reported a significant increase in exploration expenditure for its Vietnamese and Cambodian acreages in its first quarter. So, despite the strategic direction touted in its 2008 annual report -- "Realising its long-term strategy to fuel growth through upstream activities" -- this may prove more difficult and costly than expected, especially for a company with no great experience in exploration and drilling. What did PetroChina, China's largest energy company, see in SPC? According to the Economist magazine (issue of 30 May 2009) the Chinese might be looking for trojan horses:
Chinese companies have had considerable difficulty parlaying their massive financial resources into acquisitions abroad, mostly due to suspicions about their links with the Beijing government. Most notably, an attempt by CNOOC to buy US-based oil company Unocal in 2005 was blocked by Washington. Is PetroChina hoping to use SPC as a vehicle for future buys? Might be just as difficult, said the Economist:
And Singapore may well be drawn into any
controversy that may arise, painted as a proxy for China. © Yawning Bread
|
 |
||
|
Footnotes None Addenda None
|
|
Western banks are poor investments, we've heard, and Temasek Holdings'
strategy should focus more on natural resources. It seems odd then that
Singapore Petroleum (SPC) was sold to PetroChina late May 2009.
When the acquisition is completed,
PetroChina is expected to make a general offer to the rest of the
shareholders.
While the general market sentiment was
indeed poor from the third quarter of 2008 on, SPC's own 2008 results were
nothing to cheer about. See box at left. Although its 2008 revenue was 27 percent higher
than 2007, its net profit was 55 percent down.
