PTT slashes Star Petroleum stake via $365m IPO

Thailand’s state-owned energy giant sold a 30.6% shareholding for $315 million, while Star Petroleum raised a further $50 million from the sale of new shares.

Star Petroleum completed a Bt13 billion ($365 million) initial public offering on Thursday, Thailand's second-largest this year, as energy conglomerate PTT responded to antitrust concerns by chopping down its majority stake in the Thai oil refining company. 

PTT sold a 30.6% shareholding in the company for $315 million, leaving it with a stake of just over 5%, while Star Petroleum raised a further $50 million from the sale of new shares.

The shares were offered at a fixed price of Bt9 per share, equating to 6.6 times the projected earnings next year of Star Petroleum and 1.07 times its book value. The valuation is compelling given the other five listed Thai refiners are trading at an average price-to-earnings ratio of 9.6.

Effectively that implies Star Petroleum will start trading at a 31% discount to its peers when it makes its debut on December 8.

In the final book about 70% of the shares were placed with domestic investors. Allocations were skewed highly towards long-only investors and sector specialists with minimal hedge fund participation, sources familiar with the situation told FinanceAsia.

The domestic offering was well-oversubscribed with participation from a number of quasi-sovereign funds, while the international tranche was multiple-times covered and drew support for more than 40 accounts, the sources said.

JP Morgan Asset Management was the only cornerstone investor and took $29.3 million of the deal.

Overall demand was sufficient to cover an upsize option of $75 million as well as a greenshoe of $44 million. However, the management and joint bookrunners decided not to exercise either option because of fragile market conditions, particularly in Southeast Asia, preferring to leave some pent-up demand to support the share price.

High dividend yield

One of the deal’s selling points was Star Petroleum's high dividend yield of 7.5%, which is in line with Thai yield-play assets such as Bts Rail Mass Transit Growth Infrastructure Fund (7.09%) and Digital Telecommunications Infrastructure Fund (7.65%).

Due to the relatively high participation in the IPO of long-only funds, bankers expect investors to hold onto the stock for the dividend and the potential profit margin gains brought about by lower crude oil prices.

Investors are unlikely expect a pick-up in profitability in the short term, particularly when global refining supply remains strong, but longer-term prospects remain bright since Star Petroleum maintains a higher gross refinery margin relative to its rivals.

“I think the deal ticked all the boxes and allows PTT to exit at a good time of the refinery business cycle while bringing in new investors in the next stage of growth,” a source familiar with the situation said.

US energy giant Chevron, which owned a majority 64% stake before the deal, will remain the largest shareholder with an approximately 60% interest.

Chevron, and PTT have agreed to a lock-up of 12 months on their remaining Star Petroleum shares.

The Star Petroleum IPO was borne out of Thai antitrust concerns because PTT held stakes in five of the nation’s six leading oil refineries, sparking criticism that it was monopolising the country’s refinery sector.

In addition to its Star Petroleum stake sale, PTT also sold its entire stake in Bangchak Petroleum to Thailand’s Social Security Office and Krungthai Asset Management for $408 million in April. 

Star Petroleum’s IPO was run by Bank of America Merrill Lynch and Morgan Stanley internationally. In the domestic market, the joint bookrunners are Bualuang Securities, Finansa Securities, Phatra Securities, and Siam Commercial Bank.

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