PTTEP allocates part of preferential offering to new investors

About 9.2% of the $3 billion deal is allocated to investors that participated in the earlier bookbuilding exercise, sources say.

State-backed oil and gas company PTT Exploration and Production (PTTEP) has allocated 9.2% of its Bt92.3 billion ($3 billion) preferential public offering to investors that participated in the bookbuilding exercise at the end of November, according to sources.

The company’s offering to existing shareholders got a good response and technically the deal was oversubscribed after including the applications for excess shares. However, the preferential offering, which is similar to a rights issue, was structured so that existing investors were only supposed to apply for excess shares in the same proportion as their current shareholding. After adjusting the orders to ensure they didn’t exceed that amount, the arranging banks ended up with a slight demand shortfall.

According to one source, there were about 60 million shares left, which were allocated to participants in the earlier bookbuilding. This means that the company ended up with some new shareholders as a result of the share sale.

As reported earlier, about 70 investors, both new and existing ones, participated in the bookbuilding and all of them received at least some shares, the source said. The demand was split roughly half and half between long-only accounts and hedge funds and far exceeded the close to $280 million worth of shares that they ended up getting. But at least they got something.

Investors who participated in the bookbuilding linked to a preferential public offering for Tesco’s Thai property fund a couple of weeks earlier ended up getting no shares at all as existing shareholders took up the entire offering. At $245 million that deal was significantly smaller than PTTEP’s offering though.

The oil and gas producer offered its shareholders 650 million new shares on a basis of 0.195783 new shares for each existing share they owned, or just under one new share for every five existing ones. PTTEP’s controlling shareholder, state-owned PTT, took up its 65.29% entitlement in full, leaving about $1.04 billion worth of shares for minority shareholders and new investors. The deal accounted for 19.6% of the existing share capital and the proceeds are expected to help fund the company’s acquisition of London-listed Cove Energy.

PTTEP hasn’t specifically said that the money will go towards that, but rather has noted that it will “enable the company to strengthen its capital structure and allow it to achieve its growth plans.” However, pretty much everyone else links the fund-raising to the £1.22 billion ($1.9 billion) acquisition.

Indeed, sources say that the new equity will help to take out the £950 million bridge loan that the company obtained in connection with being announced the winner of Cove in mid-July after Shell pulled out of the two-way bidding contest. PTTEP also raised $500 million from the sale of a 30-year bond in June.

The new shares were offered at Bt142 each, a price that was determined by the earlier one-day bookbuilding exercise and translated into an 8.1% discount to the closing price on November 28, which was the last day before the bookbuilding. It equalled a 6.9% discount to the theoretical ex-rights price (Terp) based on that same closing price.

The share price gained a combined 3.6% in the two days after the bookbuilding, reaching a high of Bt159.50, but has since fallen again. When the four-day subscription period for existing investors ended on Thursday last week, the stock was quoted at Bt155.50, meaning investors were able to buy the shares at an 8.7% discount to the market price.

Despite a recovery in the past few months after the company changed its plans of doing a $3 billion placement in the open market, the stock is still about 12% below where it was trading before PTTEP won the contest for Cove. A key reason for that is that investors worry about the potential risks of doing business in Africa.

Cove’s main asset is an 8.5% participating interest in the greenfield Mozambique Rovuma Offshore Area 1 block, which is majority owned by Andarko Petroleum and has an estimated 30 trillion to 60 trillion cubic feet of natural gas. Cove had no revenues last year and made a loss of approximately $4 million.

The acquisition marks PTTEPs first foray into the natural gas market in East Africa, but the company said in a circular issued in June that the interest in the Rovuma project represents a strong fit and the acquisition is consistent with its strategy of leveraging the liquid natural gas (LNG) value chain of the PTT group in Thailand.

The preferential offering and the bookbuilding were both arranged by Bank of America Merrill Lynch, Deutsche Bank, Finansa, Goldman Sachs, J.P. Morgan, Phatra Securities, Tisco and UBS.

¬ Haymarket Media Limited. All rights reserved.
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