Esso Thailand goes on the road with IPO

The refinery company hopes to raise up to $350 million from its offering, cashing in on investor appetite for yield and the scarcity of Thai IPOs.
Esso Thailand will kick off the Hong Kong portion of its international public offering roadshow today. The third largest refiner in Thailand, which sells refined petroleum products directly to commercial customers and to retail consumers through its network of branded ôEssoö retail service stations, decided to go ahead with the show despite continuing volatility in global equity markets. The offering is expected to price on April 23 and start trading in Bangkok on May 6.

Sole international bookrunner Morgan Stanley and the domestic coordinator and bookrunner Phatra Securities have set a price range between Bt9 and Bt13 per share, which should net proceeds of $247 million to $275 million, pre-greenshoe û the deal size goes up to $350 million if the greenshoe is exercised.

The company is selling 773 million shares in the form of primary capital. The Ministry of Finance is selling at least 72.5 million shares and could upsize this to the entire 326 million shares that it owns. ExxonMobil remains committed to the business and is not selling in the IPO; its ownership is being reduced through dilution only. If this IPO is successful, Esso, which is an affiliate of Exxon Mobil, will own 67.5% of the company, down from its current 87.5%. The Ministry of FinanceÆs stake will drop to 7.5% from its current 12.5%.

Insiders say the government is pretty eager for the deal to happen. From EssoÆs perspective there is an opportunity now û the offering has been in the works for awhile. ôIt is ready to go and there is probably a window for this at the moment,ö says a source.

The company plans to use the proceeds primarily to reduce its debt. On a price-to-earnings basis, the price range translates to a 2008 multiple of about 4.4x to 6.6x.

On top of that there is going to be a special dividend of 1 baht per share for the 2007 earnings, which will be paid to investors in May or June. A board meeting is scheduled for May to ratify this decision. Including the special dividend, the 2008 dividend yield will be 15% to 22% (based on the IPO price range); excluding the special dividend, the dividend yield is 8.3% to12.5%. Esso Thailand has also committed to an ongoing dividend payout ratio of 40%.

Sources say it is on the dividend approach that the company is differentiating from its peers. The company has committed to a payout ratio of 40% significantly above that of its key comparables such as Thai Oil with a dividend payout of about 25% and PTT with a payout ratio of 30%.

Based on consensus street assumptions Thai Oil is currently trading on a 2008 P/E multiple of 6.8x and a dividend yield of 6.7%. Meanwhile, PTT is expected to have a 2008 P/E ratio of 7.1x and a dividend yield of 5%. At the mid-point of the range, Esso Thailand comes in at an 18% discount to Thai Oil and a 22% discount to PTT.

And so, sources say investors may be interested because Esso Thailand appears to be attractively valued, could be considered a yield pay (thereÆs a steady cash flow) and it gives exposure to the refining space, not to mention Thailand û thereÆs certainly been a scarcity of Thai IPOs.

There has also been increasing interest shown from specialists. Esso Thailand produces a greater number of petroleum products û 62 different products versus 19 for Thai Oil and 13 for PTT. Its products include LPG, gasoline, jet fuel/kerosene, diesel, fuel oil and asphalt. It also sells lubricants and aromatics products that consist primarily of paraxylene, which is used as a feedstock for the production of purified terephthalic acid, which is the raw material for polyester film, packaging, resins and fabrics. Other chemical products include solvents and plasticizers.

The company owns and operates a complex refinery with a capacity of 177,000 barrels per day of crude oil. It owns an aromatics plant with a capacity of 500,000 tonnes per annum of paraxylene, and a solvent production unit with a capacity of 50,000 tonnes per year, each of which is fully integrated with the refinery operations. The production facilities are strategically located near the Laem Chabang deep sea port in Sriracha, Chonburi province, approximately 120 kilometres southeast of Bangkok, which is a major market for our refined petroleum products.
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