SCG, Barito seek funds to expand petrochem producer

Corporate November 22, 2011 00:00


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SCG Chemicals and Barito Pacific are seeking US$500 million (Bt15.6 billion) to expand the production capacity |for ethylene at Chandra Asri Perochemical (CAP), Indonesia's largest petrochemical company, to between 800,000 and 1 million tonnes per year fr

SCG Chemicals, the biggest unit of Siam Cement Group, Thailand’s largest industrial conglomerate, in September acquired 30 per cent of CAP for $442 million, as its pioneering venture into the petrochemical industry in Asean’s largest economy. Barito remains the largest shareholder with 70 per cent.

Cholanat Yanaranop, president of SCG Chemicals, said last week that the company and Barito were considering a public offering in the Indonesian stock market and borrowing from banks with the expectation of making a decision early next year so that the increased capacity can come on stream in 2013.

“Only 5 per cent of CAP’s shares have been floated in the Indonesia stock market. We’re thinking of increasing that to 20 per cent,” he said last week on the sidelines of the Asean Business and Investment Summit in Bali.

Production capacity for polyethylene would also be increased from 340,000 tonnes per year, polypropylene from 480,000 tonnes and styrene monomer |plastic pellets from 320,000 tonnes per year.

Demand for petrochemicals in Indonesia is enormous, while supply is limited. CAP is the only company in the country with an ethylene cracker. Food packaging needs lots of plastic pellets.

“The petrochemical industry in Indonesia is on the rise. The growth of this industry is faster than the country’s economic growth. SCG |is committed to investing in Indonesia, as it is also the company’s main strategy to enlarge our presence in Asean,” Cholanat said.

SCG Chemicals is also waiting for the result of talks for Sulfindo Adiusaha, another leading petrochemical producer in Indonesia, in a deal expected to be worth as much as $700 million.

Many petrochemical players in Asia are interested in bidding for this company, including Japan’s Itochu Corporation. However, South Korea’s Hanhwa recently dropped out of contention.

Cholanat declined to go into details, but said SCG Chemicals could raise capital to expand in this region by selling its shares in PTT Global Chemical, which resulted from the recent merger of PTT Chemical and PTT Aromatics and Refining.

Before the merger process is completed, SCG Chemicals holds about 2 per cent of PTT Chemical.

SCG Chemicals wants to make high-value-added petrochemical products in Indonesia as it does at its Thai plants. This will be the next step after expanding CAP.

Regarding the petrochemical-complex project in Vietnam, Cholanat said it had just won incentives from the government there.

The conclusion on the source of funds for the project was delayed again to next year because of the bleak global financial outlook. The company is seeking loans from many financial institutions, in-cluding the Japan Bank for Inter-national Cooperation.

The $4.2-billion project was granted a 30-year exemption of raw-material taxes for propane, butane, naphtha, industrial salt and coal, as well as a 3-per-cent tax rate for special products such as polypropylene and polyethylene for 10 years.

SCG Chemicals and SCG subsidiary Thai Plastic and Chemicals hold a combined stake of 71 per cent in the complex, while PetroVietnam has 18 per cent and Vietnam National Chemical Corp 11 per cent.