Friday, July 29, 2016

Shell Files for Largest IPO in Philippines

Company Information
Shell is a global group of energy and petrochemicals companies with around 93,000 employees in more than 70 countries and territories. Its headquarters is in The Hague, the Netherlands. The parent company of the Shell group is Royal Dutch Shell PLC, which is incorporated in England and Wales.

Pilipinas Shell Petroleum Corporation (PSPC) refines, blends, transports and sells a wide range of high quality fuels, lubricants, bitumen and other specialty oil-based products. It operates a refinery with a rated capacity of approximately 110,000 bpd and over 960 retail stations nationwide. 

Pilipinas Shell commenced operations of its first crude distiller in Tabangao, Batangas in 1962 (now an oil refinery since 1994). Shell also opened a refrigerated LPG terminal in 1983, the first of its kind in Asia operated by Shell Gas Eastern, Inc. with trading handled in the region by Shell Gas Trading Asia Pacific.

It's headquarters is in Makati City and employs more than 3,000 employees nationwide.

Republic Act No. 8479 (An Act Deregulating The Downstream Oil Industry And For Other Purposes)
According to RA No. 8479, Chapter 7, Section 22,.an oil refinery company shall offer at least 10% of its shares to the public.

Below is the full text of Section 22.

Sec. 22.     Initial Public Offering. – In compliance with the constitutional mandate to encourage private enterprises to broaden their base of ownership and in recognition of the vital role of oil in the national economy, any person or entity engaged in the oil refinery business shall make a public offering through the stock exchange of at least ten percent (10%) of its common stock within a period of three (3) years from the effectivity of this Act or the commencement of its refinery operations: Provided, That no single person or entity shall be allowed to own more than five percent (5%) of the stock offering: Provided, further, That any crude oil refining company and any stockholder thereof shall not acquire, directly or indirectly, any share of stock offered by any other crude oil refining company pursuant to his Section: Provided, finally, That any such company which made the requisite public offering before the effectivity of this Act shall be exempted from the requirement.

Delayed Listing
The law was enacted last February 1998 and according to the law, oil refinery companies must make a public offering within three years from the effectivity of the law. Supposedly last February 2001, Pilipinas Shell should be listed in stock exchange but it never happened due to unfavourable market conditions and the need for refinery upgrades. Instead, Shell filed for IPO only this year. 

Caltex should follow suit soon with the current market conditions.

Largest IPO Ever
If the company would go for the maximum amount of shares at the maximum price, it would be the biggest stock market debut in the Philippine Stock Exchange at P29.7 billion worth of shares.  It can potentially exceed the sizes of the largest IPOs so far seen in the country.

Robinsons Retail Holdings Inc.  raised P28.11 in 2013.
SM Investments Corp.  raised P26.25 billion in 2005.
Cemex Holdings Philippines Inc. raised P25.1B in 2016.
Cebu Pacific’s IPO raised P23.3 billion in 2010.

LTG Group Inc. raised P37.72 billion in 2013. Technically, LTG’s exercise was a re-IPO or a follow-on offering after the group infused key businesses in what used to be a purely liquor company, Tanduay Holdings.

IPO Offerings Details
Price: P90 per share

Global coordinator and international book runner: JP Morgan
Domestic lead underwriter and domestic bookrunner: BPI Capital Corp.
Financial adviser: Rothschild

IPO Shares Composition: 
69% for offshore institutional investors
30% for local trading participants and small investors
1% for its employees.

Secondary shares: 270 million 
Primary shares: 30 million
Over allotment shares: 30 million shares

18.6% of post IPO shares

Use of Proceeds: fund capital expenditure, working capital and general corporate expenses

Financial Statements
Once the financial statements are available, we will post them accordingly. It's too early to tell whether the IPO is fairly priced or priced with a hefty premium. It should not go far beyond the valuation of Petron and its regional peers.