Thailand's PTT eyes Dow petchem assets in Asia

03 April 2009 07:07  [Source: ICIS news]

By Bohan Loh

SINGAPORE (ICIS news)--Thai oil and gas giant PTT Plc is interested in the southeast Asian assets of US chemical major Dow Chemical that could be for sale but it has not received a formal offer as yet, said a spokesperson at PTT’s 36%-owned affiliate IRPC on Friday.

Dow has joint ventures in Thailand with conglomerate Siam Cement Group (Dow-SCG Group) and in Malaysia with Petronas (Optimal Group) that may be divested as the US chemical firm restructures its business.

“Dow has not formally offered the stake to them,” said IRPC investor relations vice president Nuanwan Bhupresert, confirming that PTT is keenly eyeing the assets.

PTT senior vice president and concurrent IRPC CEO Pailin Chuchottaworn was quoted in Thai newspaper Krungthep Turakij on Thursday as saying the Thai oil major has intentions to pursue mergers and acquisitions activities with regards to Dow’s operations in Asia.

“The company is in a strong position to do M&A but must be careful,” the newspaper quoted Chuchottaworn.

Dow has yet to identify which among its olefins and derivatives businesses in the region would be divested to raise a total of $4.3bn partly to refinance its debts as it was targeting to retire a $12.5bn bridge loan by the end of the year.

"Dow cannot confirm any specifics around ongoing discussions in Asia,” said a Dow spokesperson when asked if PTT is bidding for Dow’s stake in the joint venture with SCG.

“The company is looking at a variety of strategic options and continues to be a leading supplier of a variety of chemicals and plastics throughout Asia,” said the spokesperson.

PTT’s interest would naturally fall on Dow’s Thai joint venture with SCG, analysts said.

SCG itself could not afford to buy out the 35% share of its US partner in the projects that has a book value of Baht (Bt)18.8bn ($528.8m), analysts had said earlier on.

“The PTT group is definitely in a financial position to buy a stake in this (SCG) JV if it is put up for sale,” said Sutthichai Kumworachai, an analyst at brokerage firm, KGI Securities.

He said PTT had a healthy cash and cash equivalent balance of Bt90.8bn as of 31 December 2008, and had a net debt to equity ratio of 0.41 times, implying that the state-owned major has the flexibility to raise more capital if required.

The Dow-SCG joint venture has four ongoing projects, including a 900,000 tonne/year cracker and a 390,000 tonne/year propylene oxide (PO) unit that would employ Dow and BASF’s proprietary hydrogen peroxide-to-propylene oxide (HPPO) process technology.

They have four other JV companies that produce styrene monomer, polystyrene, latex as well as polyethylene in the industrial estate of Mab Ta Phut.

Some analysts are doubtful of the synergy between PTT and SCG, saying pricing would be key for PTT to push through with the acquisition.

“If PTT were to take a stake, it is likely to treat it from a pure investment standpoint in that it views the buy-out price as being cheap and expects relatively good returns from it,” said Lertchai Kochareonrattanakul, an analyst from Fitch Ratings.

“I see limited opportunities for integration and synergies between PTT and SCG apart from volume expansion,” he added.

“You would expect to get yourself a bargain situation especially now,” said Naphat Chantaraserekul, a senior investment analyst from brokerage firm Kim Eng Securities.

($1 = Bt35.55)

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By: Bohan Loh
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