• 
• 

Published on July 24, 2007

Aromatics and Rayong Refinery shares closed at the day's peak at Bt71 and Bt24.30 respectively.

Major shareholder PTT yesterday said its board of directors has resolved to set up a new company, PTT Aromatics, to facilitate the integration of Aromatics and Rayong Refinery. Each share of Aromatics and Rayong Refinery will be swapped for 1.524 and 0.517 shares respectively of the merged entity.

"The amalgamation of Aromatics and Rayong Refinery will establish a strong business position for the merged firm and create cost advantage and value addition in refinery, aromatics and related businesses. Therefore, PTT positions the merged firm to be the integrated refinery and petrochemical aromatics chain of the PTT Group," the company said.

Energy Minister Piyasvasti Amranand said the merger of Aromatics and Rayong Refinery would strengthen the merged entity's financial position and protect them from price fluctuation.

"The merger will create the largest refinery in Asean, and this will attract more institutional investors to the Thai market," he said.

After the amalgamation and the construction of the project, the merged company will have expanded its crude and condensate refining capacity of 280,000 barrels per day and the expanded aromatics production capacity of 2.2 million tonnes per year.

PTT owns 49.9 per cent of Aromatics (Thailand) and 48.8 per cent of Rayong Refinery.

The merger plan will be voted on by Aromatics and Rayong Refinery's shareholders at a meeting scheduled for September 13.

Energy Ministry permanent secretary Pornchai Rujiprapha is hopeful the energy sector will be more active after the merger of ATC and RRC as well as the listing of Esso (Thailand) and Star Petroleum Refinery next year.

He said Esso (Thailand)'s initial public offering (IPO) could take place next March and SRPC's in the middle of next year.

On the IPO of Esso (Thailand), he said financial advisers Morgan Stanley and Phatra Securities had suggested March as the best time, given that brokers usually take vacations between December and Chinese New Year, which normally falls in February.

Under refinery construction contracts, all refineries are committed to list on the stock exchange. The Finance Ministry now holds 12.75 per cent in Esso (Thailand) and the contract specifies the sale of 20 per cent of issued shares.

"However, the IPO regulations demand the minimum divestiture ratio of 25 per cent. Therefore, about 25-30 per cent of shares could be offered," Pornchai noted, addding that before the IPO, Esso (Thailand) needed to restructure its accumulated debts.

He said PTT, which owns 36 per cent in SRPC, would finalise the IPO options with Chevron, which owns the remaining 64 per cent. The IPO could contain only shares currently held by PTT or shares from both PTT and Chevron.

"Esso and SRPC's listing could increase the market capitalisation by about Bt60 billion. The listing would also ensure closer scrutiny of refineries," he said.

Ayudhya Securities recommended investors to snap up stocks of either Aromatics or Rayong Refinery.

"For those who already have shares of Aromatics and Rayong Refinery, we would suggest "hold" in order to swap for shares of the merged company. For example, based on the current share price of Aromatics of Bt66 and the swap ratio of one Aromatics share for 1.524428135 shares of the merged company, the estimated cost of the new company's share would be Bt43.30," the broker said.

"Based on Rayong Refinery's share price of Bt22 and swap ratio of one RRC share for a 0.51675530 share of the merged company, the estimated share price of the new company would work out to Bt43.15."

Phatra Securities has maintained its "buy" recommendation for Rayong Refinery but raised its price objective from Bt22.50 to Bt27.80.

"We conservatively value the instant synergy benefits at US$60 million (Bt2 billion) per year for the merged firm, although a press release from PTT estimated the benefits would range between $169 million and $348 million in the long run," the broker said.