Petronas Chemical IPO Over price ?

Nov 12, 2010 4:22 AM GMT+0800
Petronas Chemicals Group Bhd., a unit of Malaysia’s state oil company is offering $4.2 billion in initial public offering.

The shares of Petroliam Nasional Bhd.’s chemical unit may price today at the top end of the offering range of 4.50 ringgit ($1.46) to 5.20 ringgit each in what would be Malaysia’s biggest IPO on record, according to two of the people, who declined to be identified before an announcement is made.

The benchmark FTSE Bursa Malaysia KLCI Index rose 19 percent this year and reached a record on Nov. 10, as international investors purchased more of the nation’s stocks than at any time since at least 1995, according to data compiled by EPFR Global. The IPO values Petronas Chemicals at 38.8 billion ringgit, or 16.3 times profit, a 38 percent premium to the industry median.
Biggest Offering
At the midpoint, the IPO would give government-owned Petronas a 184 percent return on its per-share stake valued at 1.71 ringgit, according to the prospectus and Bloomberg data.

The sale would eclipse the record $3.3 billion IPO from Kuala Lumpur-based Maxis Bhd., Malaysia’s biggest mobile-phone operator, last year and lift the nation’s initial offerings to an all-time high, the data show.

Petronas Chemicals, formed through the combination of more than 20 companies, will offer 2.48 billion shares for a 31 percent stake, the prospectus said. Petronas will get 72 percent of the proceeds, while the chemicals unit plans to use the remainder to build facilities and fund acquisitions.

Petronas Chemicals intends to pay 50 percent of annual earnings as dividends to shareholders, the prospectus said.

Relative Value
Wan Zulkiflee Wan Ariffin, chairman of Petronas Chemicals, said on Nov. 2 the company may invest as much as $1 billion in an ammonia and urea plant in eastern Malaysia that will use the nation’s natural-gas reserves in that area. Malaysia is the world’s second-largest supplier of liquefied natural gas.

Petronas’s holding in Petronas Chemicals was valued at 12.47 billion ringgit, or 1.71 ringgit a share, at the time of the unit’s formation, the prospectus said. The midpoint IPO price would make Kuala Lumpur-based Petronas Chemicals one of Malaysia’s 10 largest publicly traded companies, the data show.
Buyers would be paying about 16.3 times profits, based on the 1.19 billion ringgit the unit earned in the six months ended Sept. 30, the prospectus and data compiled by Bloomberg show. That compares with the median 11.8 times estimated earnings for 31 petrochemical companies globally, which gained an average of 47 percent so far this year.
Honam Petrochemical Corp., the Seoul-based maker of ethylene that is acquiring Malaysia’s Titan Chemicals Corp., trades at 8.1 times estimated profit. The shares have more than doubled in 2010.

Not Cheap

The valuation for Petronas Chemicals reflects a premium of 8.9 percent to shares in Malaysia. The 30 companies in the FTSE Bursa Malaysia KLCI Index trade at an average 14.97 times profit in the next 12 months after the gauge climbed to a record 1,528.01 on Nov. 10.
The stock index exceeded the previous high in January 2008 as investors poured more than $355 million into Malaysian equity funds on a net basis in 2010, data compiled by Cambridge, Massachusetts-based EPFR Global show. Asian IPOs have attracted a record $142 billion this year, Bloomberg data show.

The Employees Provident Fund and Kumpulan Wang Persaraan (Diperbadankan), two of Malaysia’s state-controlled retirement funds that oversee more than $150 billion, will buy 18 percent of the offering as strategic investors, the prospectus said.
Malaysia Marine & Heavy Engineering Holdings Bhd., the Kuala Lumpur-based rig-building arm of Petronas’s MISC Bhd., raised about 2 billion ringgit last month in the nation’s biggest IPO so far this year. Institutions placed orders for 27 times the number of shares they were allocated.
The country’s finance ministry may also divest its holdings in Percetakan Nasional Malaysia Bhd., the state-owned printing company, CTRM Aero Composites Sdn., an aerospace components maker, and two biotechnology companies, Najib said in March.
( Source : Bloomberg )