THAILAND: Two PTT units get together

Shareholders of PTT Chemical (PTTCH) and PTT Aromatics and Refining (PTTAR) have approved a merger between the two PTT subsidiaries, to create the third-biggest petrochemical firm in Southeast Asia, behind Petronas Chemical and Siam Cement Group (SCG), in terms of enterprise value.

About 99 per cent of PTTAR's shareholders agreed to the merger, while 96 per cent of PTTCH shareholders gave it a nod.

PTTCH president and chief executive Veerasak Kositpaisal said the business growth of the newly merged company was still being evaluated, as prices for olefins products were expected to bottom out starting from next year, while prices for paraxylene products had been good since the final quarter of last year.

Parent company PTT has targeted revenue of Bt400 billion for the merged company this year, although the target was set before the global oil price skyrocketed. It is now steady at about US$120 per barrel.

Both companies are working on the merger process, which is already about 80 per cent complete. Shares of the new company are expected to be traded on the Thai stock market in August.

Veerasak said PTTCH's revenue in the first quarter of this year should be higher than that in the first quarter of 2010, thanks to increased production volume and higher product prices.

PTTAR president and chief executive Bowon Vongsinudom said the merged company would have the opportunity for synergies in manufacturing new petrochemical products such as acrylonitrile butadiene styrene (ABS), polycarbonate and propylene oxide, which can be used in the automotive industry.

It is expected that the earnings of the merged company from synergies in the existing business of both companies - before interest, tax, depreciation and amortisation - will range between $80 million (Bt2.39 billion) and $154 million per annum, depending on world oil and petrochemical prices.

The minimum scenario of $80 million is based on the assumption of a Dubai crude oil price of $62 per barrel, while the maximum is based on a Dubai crude price of $130 per barrel. Therefore, the new company seems likely to benefit by nearly $154 million per year from the synergy, thanks to the current high oil price.

"It would have been difficult to achieve such a benefit if we had not been able to merge with PTTCH because each company had the priority of benefiting its shareholders. So the synergy may not have taken place," he said.

Fewer risks

Bowon said the merger would also reduce risks from fluctuations in world petrochemical prices, as the upturn and downturn periods of olefins and aromatics products were different. Prices for aromatics products are expected to be good over the next one or two years, while prices for olefins products will be good two to three years hence.

Bowon said PTTAR's profit in the first quarter of this year was likely to be higher than that in both the previous quarter and the corresponding quarter of 2010, thanks to higher petrochemical prices - such as those for paraxylene and benzene - and increased demand for petrochemical products, particularly from emerging markets.

Paraxylene spread, for example, was about $700 per tonne in the first quarter of this year, compared with $400 in the final quarter of last year and $550 a year ago.

He said paraxylene plants in Japan - the world's largest exporter of such petrochemical products, with a volume of 2 million tonnes per year - had to delay plans to start new production. At the same time, demand, particularly from the emerging markets, is continuously increasing, so prices remain high.(Syed Rashid Ali, Karachi, Pakistan)