FocusChandra Asri stake to boost Thai SCG's product margins

20 September 2011 09:24  [Source: ICIS news]

(recasts paragraph 8 for clarity)

Chandra Asri facility in Cilegon, west Java, IndonesiaBy Nurluqman Suratman

SINGAPORE (ICIS)--Thailand’s Siam Cement (SCC) can expect better propylene yield and higher product margins, following its acquisition of a 30% stake in Indonesian sole cracker operator Chandra Asri Petrochemical, analysts said on Tuesday.

SCC, widely known as the Siam Cement Group (SCG), announced on Tuesday that its wholly-owned unit, SCG Chemicals, will purchase about a third of Chandra Asri – 701.3m shares or 22.9% from Apleton Investments, a unit of Singapore’s Temasek Holdings, and 218.5m shares or 7.1% from Jakarta-based Barito Pacific – for (Bt) 13.5bn ($442m).

“We believe that SCC is in a strong position to acquire and can expand the value chain of Chandra Asri into higher value-added products. We see this as value enhancement for SCG,” said Naphat Chantaraserekul, a Bangkok-based analyst at brokerage DBS Vickers Securities.

The acquisition is set to add around 768,000 tonnes to SCC’s overall chemical capacity, Chantaraserekul said.

Chandra Asri’s integrated petrochemical complex at Cilegon, Banten, in west Java, comprises a 600,000 tonne/year naphtha cracker, two polyethylene (PE) plants, three polypropylene (PP) plants and two styrene monomer plants.

It is the largest petrochemical firm in Indonesia, with an annual capacity of 1.42m tonnes, Chantaraserekul said.

“As Chandra Asri uses almost 100% naphtha as feedstock, this yields higher propylene output than using gas as feedstock,” Chantaraserekul said.

SCG also uses naphtha as its key feedstock for petrochemical production in Thailand, he said.

“This is the key advantage of naphtha over ethane gas feedstock. Propylene can be produced from either propane gas or naphtha. But, only a small amount of propane is cracked from natural gas,” he said.

With little new propylene supply going into the global market, as most new capacities coming up in the Middle East are based on natural gas, propylene can command higher prices compared with ethylene, the DBS Vickers analyst said.

Chandra Asri, on the other hand, also stands to benefit by having a fully integrated petrochemical player, SCG, as one of its major shareholders, Chantaraserekul said.

SCG has a portfolio of high-value added products that command higher and more stable margins for other downstream products, thereby boosting Chandra Asri’s margins, he said.

“This is a real value enhancement proposition that SCC can create at Chandra Asri,” Chantaraserekul added.

Separately, the acquisition will also allow SCG to expand its product portfolio and dominate the regional market, said Nat Panassutrakorn, a research analyst at Bangkok-based KGI Securities.

“With its high cash on hand of Bt58bn, we expect SCC to aggressively seek M&A [merger and acquisition] deals in its core businesses. We foresee the company’s earnings rising consistently over the next few years,” Panassutrakorn said.

SCG was reported as among those interested in acquiring Indonesian Sulfindo Adiusaha, which produces caustic soda, polyvinyl chloride (PVC) and ethylene dichloride (EDC).

One of the potential bidders for Sulfindo Adiusaha, South Korea’s Hanwha Chemical, said in a regulatory filing that it has decided not to pursue the acquisition.

“It is now even more likely that SCC will make a move for a full takeover of Sulfindo Adiusaha after Hanwha’s pullout,” Chantaraserekul said.

($1 = Bt30.58)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Nurluqman Suratman

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