Japan's JX Holdings, TonenGeneral to merge via share swap

31 August 2016 06:40 Source:ICIS News

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SINGAPORE (ICIS)--JX Holdings and TonenGeneral Sekiyu KK have reached a final agreement on Wednesday to pursue integration of their energy businesses via a share exchange, the Japanese companies said in a joint statement.

JX Nippon Oil & Energy Corp – a wholly-owned subsidiary of JX Holdings – and TonenGeneral “will consummate an absorption-type merger after the share exchange”, they said.

The share allocation ratio will be 2.55 shares of JX Holdings for every one share of TonenGeneral. A total of 928.8m shares of JX Holdings will be delivered to the shareholders of TonenGeneral.

At 13:55 Japan time (05:55 GMT), JX Holdings shares were up 1.79% at yen (Y) 385.3 while TonenGeneral surged 5.53% to Y954.

The share exchange is expected to be completed on 1 April 2017, in which TonenGeneral will become a wholly-owned subsidiary of JX Holdings.

TonenGeneral will be delisted on 29 March 2017, according to the statement.

JX Holdings has a total refining capacity of 1.42m bbl/day across its seven refineries, while TonenGeneral has four refineries with a combined capacity of 698,000 bbl/day.

Both companies produce ethylene, propylene, benzene, and paraxylene (PX), while JX Holdings has exposure to copper mining and refining, as well as to electric materials, and recycling and environmental services.

The companies intend “to maximize their enterprise value by combining the business resources of their company groups and carrying out intensive business reforms” amid challenging operating conditions in Japan and elsewhere.

“Demand for petroleum products in Japan has declined by about 23% over the past 10 years. With the decreasing population, the growth of fuel-efficient vehicles and the shift to gas, electric power and other types of energy, the decline is expected to continue at a rate of around 2% per year,” the companies said.

“Meanwhile, overseas, demand for petroleum and petrochemical products is increasing in China, India and other Asian countries; however, there are already large-scale plants in Korea and elsewhere, and the construction of new or additional, highly cost-competitive plants is anticipated in developing countries as well.

“For these reasons, international competition in the Asian market, including Japan, is expected to increase dramatically,” the companies said.

The business integration is still subject to shareholders’ approvals on 21 December 2016.

On 1 April next year, JX Holdings’ name will be changed to JXTG Holdings, while JX Nippon Oil & Energy Corp will become JXTG Nippon Oil & Energy Corp.

JX Holdings and TonenGeneral has signed a memorandum of understanding (MoU) regarding business integration on 3 December 2015, with a view to generate more than Y100bn in annual profit improvement within five years.

In a statement issued on Wednesday, the companies said they now expect the financial target can be achieved within three years of integration.

Noting that “fixed cost reduction through refinery closure is vital to achieving further profit improvements”, the integrated energy company “will study and conduct refinery closure as soon as possible,” the companies said.

JX Holdings had incurred a Y278.5bn consolidated net loss on sales of Y1,928bn in the fiscal year ending March 2016, while TonenGeneral posted a net profit of Y51m with sales at Y234.1bn for the whole of 2015, based on the statement.

JX-Tonen capacities 31 August 2016

Source: JX Holdings, TonenGeneral

Picture: Areial view of JX Nippon Oil & Energy site (Source: JX Holdings 2015 Annual Report)

Read John Richardson and Malini Hariharan's blog - Asia Chemical Connections

By Pearl Bantillo