All eyes on oil for awaited Tet sales

Equitisations of three leading oil giants should generate over $570 million for the state , Photo: Le Toan

The Vietnamese government last week approved the equitisation plans of Binh Son Refinery, PV Oil, and PV Power, all leading businesses in the oil and gas industry. The market has been abuzz about the public debuts of these three firms for the past year. The government expects to generate at least VND13 trillion ($570.7 million) from these sales.

Binh Son Refinery (BSR), the operator of Vietnam’s only oil refinery Dung Quat, plans to offer 241 million shares, or 7.79 per cent of its outstanding capital, to external investors. Prices start at VND14,600 ($0.64) a share. Strategic investors are expected to hold 49 per cent of BSR, while state-owned oil giant PetroVietnam retains its 43 per cent ownership.

For Vietnam’s second-largest oil retailer and sole exporter of crude oil PV Oil, outside investors can buy 20 per cent of shares in the initial public offering (IPO). About 44 per cent will go to strategic investors, with state ownership dropping to 35.1 per cent. The starting price for PV Oil is VND13,400 ($0.59) a share.

Meanwhile, PV Power, the country’s second-largest electricity producer, will sell 28.8 per cent of stake to strategic partners and offer another 20 per cent to the market at VND14,400 ($0.63) per share. PetroVietnam plans to keep its 51 per cent stake.

All three businesses have shown their determination to hold their IPOs before the Lunar New Year, in mid-February 2018. Throughout 2017, they have met with various potential investors, mostly leading oil businesses around the world. BSR, for example, held meetings with 17 investment funds and five oil firms, including World Petro Company from the US and Macron Petroleum from Cyprus, who both offered to buy the entire 49 per cent batch of shares.

Other suitors for BSR are Spain’s Repsol and American firm Kevcomp, who met with the Vietnamese oil refinery last month. All investors expressed their intention to improve corporate governance and technologies at BSR.

Similarly, PV Power has attracted the attention of Singapore’s Gemcorp Industries and sovereign fund GIC, as well as Vietnam-based investment funds Indochina Capital, VinaCapital, and Dragon Capital.

The situation is a bit more complicated for PV Oil. According to the law, investors can only become strategic partners at a Vietnamese oil retailer if they also invest in an oil refinery in the country.

This rule could lead to two scenarios. In the first, potential strategic partners in PV Oil must also buy stakes in BSR. Another option is that Idemitsui Kosan, Kuwait Petroleum, or Mitsui Chemicals, all existing developers in Vietnam’s upcoming Nghi Son refinery, can consider buying PV Oil. However, Idemitsui and Kuwait Petroleum have just launched their own oil retailing system in Vietnam called Idemitsui Q8, which seemingly provides the firms less incentive for a PV Oil purchase.

In a recent report, BIDV Securities pointed out that Vietnam’s fast-growing economy, especially in its continued focus on manufacturing, presents opportunities for the $5.9 billion oil and gas industry. Viet Capital Securities also reported that the prospects of oil and gas firms are strong, citing forecasts that Vietnam’s oil and gas consumption will climb by 6.8 per cent every year between now and 2025.

Huynh Anh Tuan, CEO of SJC Securities, noted that global oil prices are on a recovery track ($62.44 per barrel for crude oil, and $56.6 for Western Texas Intermediate as of Friday), which bodes well for Vietnam’s oil and gas firms.

“This is a good time to sell leading businesses in this sector,” Tuan said. “Moreover, foreign investors are paying strong attention to Vietnam, thanks to the recent well-reported sales of Vinamilk and Sabeco. I believe that these businesses can do well in their IPOs.”

There are worries, however, that these three major sales taking place at the same time could lead to an oversupply of oil-related shares.

Nguyen Manh Hung, deputy CEO of PetroVietnam, downplayed these concerns, stating that BSR, PV Oil, and PV Power all operate in different segments, which means they will attract different sets of investors.