Given the relative rarity of large follow-on share sales in this market, investors were said to have embraced the chance to buy shares in a Singapore bluechip in bulk. The transaction, which was arranged by Merrill Lynch, accounted for about 40 days worth of trading volume.
The seller was Indonesian investment firm Satya Capital which bought 115 million shares in the Singaporean refiner two years ago. It has wanted to monetise part of that investment, which currently equals 22% of the company, for some time.
The base size of the deal comprised just under half of SatyaÆs stake, or 55.9 million shares, which were offered to investors at a price between S$5.61 and S$5.72. The range translated into a discount of 3.0% to 4.9% versus the S$5.90 close on Monday (May 8).
The price was fixed at the bottom of the range at S$5.61 for a 4.9% discount in the early hours of Tuesday morning - but at the same time the size of the deal was increased from about $200 million to $248 million. This meant the total transaction size ended up being 69.35 million shares, or 13.5% of the company, which is the largest percentage of a top-30 company sold through an overnight block trade in Singapore ever.
About 35 investors participated and the final order amount was said to have been well in excess even of the increased deal size, according to a market source. The interest came from a mixture of Asian investors, international funds and specialist oil and gas accounts with some believed to have placed orders for up to 10% of the total deal, the source says.
According to industry watchers, there is a big bid for Asian refinery stocks at the moment and the sell-down of Singapore Petroleum benefited from that. The company is the only oil refiner listed in Singapore.
And although the company, which has a 50-50 refining joint venture with Chevron, makes most of its revenues from refining, it does have a number of oil and gas exploration and production assets in Southeast Asia to complement that business and diversify the risks.
ôYour ultimate view on the stock will depend on where you expect refining margins to go, but most people are expecting them to remain fairly robust,ö reckons one observer, who adds that the company is also expected to make an E&P-related announcement in the near future which is helping to underpin the stock.
In the first quarter this year, Singapore Petroleum posted a 6.6% drop in net profit to S$67.9 million despite a 52% increase in revenues and said demand for refined products in the Asia-Pacific region in the first half of the quarter was subdued due to the continued high oil prices, high inventories and the withdrawal of fuel subsidies in several countries.
In March ôheightened geopolitical tensions re-emerged as a key driver in oil markets, while the continuing impasse over IranÆs nuclear programme and threats of further shutdowns and disruptions to supplies from Nigeria and Iraq resulted in stronger demand for crude and refined products. Oil prices had since climbed above previous highs,ö the company said.
ôAgainst this backdrop, refining margins were relatively weak in the first two months of the quarter, but staged a strong recovery in March,ö it added.
Investors also like the company because of its stable shareholder base, with government-controlled conglomerate Keppel Corp being the single largest owner with 44%. The sell-down by Satya will act as a big liquidity catalyst for the stock, and is unlikely to be taken negatively by other equity holders since the Satya family was a passive investor in the company.
The investment company, which will retain about 40% of its original investment, agreed to sell a 20.6% stake in Singapore Petroleum to China Aviation Oil (Singapore) Corp in August 2004, but the deal fell through when the Chinese jet fuel trader almost went bankrupt after incurring $550 million in losses from trading oil futures later that same year.
In June 2005, CAO said it had settled a $28 million claim from Satya related to the aborted stake sale.
Singapore PetroleumÆs share price fell 1.7% yesterday after the transaction, but closed above the placement price at S$5.80 û only S$0.20 below its record high close of S$6.00, which it first reached in September last year and then again on May 3.
By comparison, when Temasek sold $1.27 billion worth of shares in Singapore Telecommunications in March, the stock dropped below the S$2.66 placement price for more than a week immediately following the Goldman Sachs-led transaction. SingTel has since recovered although not returned to its pre-deal price of S$2.80. Yesterday it fell 2.2% to S$2.69 as the benchmark index lost 1.1% in its biggest one-day tumble in more than six months.
There has been only one other block trade above $100 million in the Singapore market so far this year û a $119 million sell-down in bus and taxi operator ComfortDelgro by its largest shareholder. That deal was arranged by Citigroup.
For Merrill Lynch, the Singapore Petroleum sell-down marks a continuation of the capital markets work it has done for Indonesian counterparties and within the Southeast Asian resources space over the past year.
In December 2005, the bank helped specialty chemicals group PT Sulfindo raise $151 million from a structured pre-IPO convertible. In July last year it did a $260 million offering of common shares or GDRs for oil and gas producer PT Medco Energi together with Credit Suisse, and a month earlier it arranged a $600 million future flow securitisation for two coal mining units of Bumi Resources where local bank PT Danatama Makmur acted as joint lead manager.
The investment bank is also gearing up to launch a formal IPO roadshow later this week for Rayong Refinery, currently a wholly-owned unit of ThailandÆs biggest energy company. Morgan Stanley is joint bookrunner on that offer.
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