Tuesday, November 2, 2010

Petronas Chem IPO book shows investors cautious-sources

KUALA LUMPUR:'' Malaysia's Petronas Chemicals' IPO has seen more local demand at the lower end of an indicated price range than at the higher end, sources said, showing domestic investors are cautious about the company's valuations.

The IPO, which could raise as much as $4.2 billion excluding the greenshoe option to become Southeast Asia's largest ever public float, has been covered three times at the top end of the 4.50-5.20 ringgit ($1.45-$1.68) indicated price range and six times at the lower end, two sources told Reuters on Tuesday, Nov 2.

A fund manager involved in the bidding and a banker with direct knowledge of the deal said that the domestic book-building exercise has seen significant interest. The sources declined to be named because they were not authorised to talk to the media.

HwangDBS Investment Management's head of equities Gan Eng Peng said the way the book was covered showed that there was strong demand for the stock but investors were price-sensitive.

"Basically, it means the deal could be rich at the top end," Gan said, adding that he did not have knowledge of the way the books were being covered.

Petronas Chemicals is a unit of Malaysian state oil firm Petronas. Its executive vice president of finance, George Ratilal, declined to provide details on the book-building exercise at the company's prospectus launch on Tuesday.

"Current engagements with investors have been very encouraging," Ratilal said.

The book-building exercise has now moved offshore, and is expected to close in the United States on November 11. Pricing of the IPO is on Nov. 12 and trading will begin on the Kuala Lumpur stock exchange on Nov. 26.

EXPANSION

Petronas Chemicals will garner about 3.54 billion ringgit from the IPO, and has earmarked 2.24 billion of the proceeds for business expansion.

Company chairman Wan Zulkiflee Wan Ariffin told a briefing Petronas Chemicals is looking at a number of expansion projects including an urea and ammonia plant in Sabah, on the island of Borneo, which is expected to cost between $900 million and $1 billion.

He added that the project has not yet been sanctioned, and a decision would be made next year.

Petronas Chemicals is also looking at starting a new line of specialised chemicals in a joint venture with an existing foreign partner and an integrated petrochemical complex, Wan Zulkiflee said, but declined to provide details.

Petronas Chemicals did not provide forward profit estimates in its prospectus. However, it reported a net profit of 938 million ringgit for the four months ended July 2010.

The performance, on an annualised basis, translate to an earnings-per-share or EPS of 35 sen per share, or a price earnings ratio of 14.9 times for its FY2011 ending March 31.

Wan Zulkiflee said prices of petrochemical products looked to be on a "positive trend", although he warned that the business was cyclical in nature. - Reuters


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