Thai PTT Chemical, PTTAR merger to create petchem giant

(adds further details, comments from ratings firms throughout)

By Nurluqman Suratman and Pearl Bantillo

SINGAPORE (ICIS)–Thailand’s PTT Chemical and PTT Aromatics and Refining (PTTAR) announced on Friday a plan to merge and create a much stronger entity, ending speculation on the much-delayed consolidation of the petrochemical affiliates of energy giant PTT.

The merged company “will be the largest integrated petrochemical and refining company in Thailand and larger than other southeast Asian peers,” PTT said in a disclosure to The Stock Exchange of Thailand (SET).

The new entity would be PTT’s petrochemical flagship company, which would have an 8.2m tonne/year petrochemical production capacity and a 228,000 bbl/day capacity to produce petroleum products, it said in the statement, stating its full support for the merger.

“The new company derived from this amalgamation will be able to expand its businesses to cover other products which are of higher values and yield higher profits,” PTT Chemical said in a separate statement.

Around $80m-154m (€58m–111m) in cost savings was expected to be generated from the merger, PTT Chemical said, citing a study conducted on the planned merger.

An additional investment of $92m would be needed to build a common product pipeline system and improve supporting facilities of the two companies, it added.

“The [merged company] will be a fully integrated company with natural gas, condensate and crude oil as its principal feedstocks … will produce a diverse array of petrochemical and oil products encompassing all basic petrochemical and petroleum products,” PTTAR said in a separate disclosure.

Additional benefit could be derived from the expected increase in hydrowax production, it added.

“The hydrowax will be used as feedstock for the future new cracker project. There is also further benefit from processing raffinate and reformate products of [PTTAR] and C5+ products of PTT Chemical into gasoline blending component,” PTTAR said.

Based on the planned allocation of the shares, one PTT Chemical share would be equivalent to 1.98 shares in the merged company, while one PTTAR share was equivalent to about 0.50 share of the unified firm, PTTAR said.

Investors appeared to welcome the merger, with the shares of PTT Chemical gaining 0.7% at baht (Bt) 146.50/share at the close of trading on Friday. PTT Aromatics’ shares also increased 0.67% to settle at Bt37.50/share.

The merged company was expected to have the fourth biggest market capitalisation among the companies listed in the SET.

PTT had planned the consolidation of any of its four publicly-listed petrochemical affiliates – PTT Chemical, PTT Aromatics, Integrated Refinery and Petrochemical Complex (IRPC) and Thai Oil – since 2009 but was held up by the environmental controversy in Mab Ta Phut that lasted more than a year.

The merger was still subject to approval of the respective shareholders of the companies, in separate general meetings to be held on 21 April.

“The business-risk profile of the proposed merged entity will be stronger than both PTTAR’s and PTT Chemical’s,” credit ratings firm Standard & Poor’s said in a research report.

“This is because the merged company is likely to have an improved competitive position due to its increased product diversity, operational integration and stronger market position,” it added.

Moody’s Investor Service vice president Renee Lam, meanwhile, said: “The new entity would benefit from a larger-scale, as well as enhanced product flexibility from the amalgamation of PTTAR and PTTCH’s previously separate refining and petrochemical production chains.”

But no immediate synergy benefits could be derived from the consolidation, according to Moody’s, citing inability of PTTAR’s upstream refined petroleum products to directly feed into PTT Chemical’s primarily gas-based production.

PTT Chemical has an olefins nameplate capacity of 2.89m tonnes/year, comprising 2.38m tonnes/year of ethylene and 512,000 tonnes/year of propylene.

It has 17 subsidiaries where it holds at least a 50% interest and seven affiliates, where it controls less than 50%.

PTTAR, on the other hand, has a refining capacity of 280,000 bbl/day of crude oil and condensate intake, with a wide range of high quality petroleum products at the capacity of 228,000 bbl/day.

It has two aromatics units at the site, producing benzene, paraxylene, cyclohexane, orthoxylene, toluene and mixed xylenes, with a total capacity of 2.26m tonnes/year.

PTTAR has four affiliates – PTT Phenol (30%), PTT Utility (20%) and PTT ICT Solutions (20%) and Business Service Alliance (25%).

($1 = €0.72, $1 = Bt30.62)

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