Ashmore to pay $550 million for 40% of Petron Corp

Ashmore is buying its 40% stake in the Philippine oil refiner from Aramco, which bought into Petron when the company was privatised 14 years ago.
London-based investment fund Ashmore Group agreed to pay $550 million for Aramco Overseas BVÆs 40% stake in Petron Corp, the PhilippineÆs largest domestic oil refiner, on March 19 after talks between the parties last week.

Ashmore, advised by JP Morgan, would make the purchase through its SEA Refinery Holdings unit, and pay $200 million when the deal is closed and the $350 million balance within 12 months. A company disclosure on Monday revealed that the transaction is covered by a share purchase agreement between Ashmore and Saudi Aramco, without Petron being a signatory.

As a leading emerging market investment manager, Ashmore has $36.5 billion under management. The group has a significant investment in Metro Pacific Investments, a holding company which has stakes in Philippine Long Distance Telephone Company, Maynilad Water Services and Makati Medical Center.

However, the state-owned Philippine National Oil Company (PNOC), which also owns 40% of Petron, has a pre-emption right over AramcoÆs stake, and has 60 days to make a counter offer. PNOCÆs chief executive officer, Antonio Cailao, hasnÆt yet ruled out that course of action, but will examine his options. A further 20% of the company is owned by around 200,000 individual shareholders.

Aramco, a subsidiary of Saudi Aramco, bought its stake in Petron when the company was privatised in 1994. Petron operates the Bataan refinery with a capacity of 180,000 barrels per day and has about 1,200 service stations. Earlier in the week, Petron had said at a press conference that Ashmore Group would support the companyÆs further expansion, as it announced that it will need $1.5 billion for phase two of its 140,000 metric tonne Petrochemical Fluidized Catalytic Cracker project at its Bataan refinery scheduled to start next year. This would enable Petron to increase its stable of higher value products such as diesel and liquefied petroleum gas.

Separately, Petron has been in talks with PNOC-Alternative Fuels to buy part or all of the bio-diesel produced by the state-owned company.

Some analysts believe that Aramco, which was advised on the transaction by Citi, was keen to bail out because it was unhappy with PetronÆs close association with the government - which sometimes meant that it led price reductions and lagged price increases. On the other hand, congressional calls for re-nationalisation amid rising world oil prices are at odds with the stateÆs policy of liberalising the oil industry.

Saudi Arabia supplies 65.6% of the PhilippinesÆ oil imports, and Petron said Saudi Aramco will continue to be its ôsupplier of choiceö. Aramco intends to focus on its $50 billion domestic expansion programme.

Although Petron officials are downplaying the significance of AramcoÆs exit, there must be some anxiety about the loss of technical support as well as any preferential access to crude oil - especially in times of supply tightness - that it enjoyed. PetronÆs share price has fallen just over 3% during the last week, but was unchanged at Ps5.80 after the announcement of the deal.
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