June 2, 2016 / 5:11 AM / a year ago

Exclusive: Thailand's PTT studies proposal for retail business IPO - sources

4 Min Read

The logo of PTT is pictured at an exhibition hall in Bangkok, Thailand, May 12, 2016.Athit Perawongmetha

HONG KONG/SINGAPORE/BANGKOK (Reuters) - Thailand's biggest energy company PTT is examining a proposal to list its retail business and is expected to complete the study in the third quarter of this year, the state-backed company's investor relations official told Reuters on Thursday.

PTT has hired JPMorgan Chase & Co and Phatra Securities to advise on the potential IPO, people familiar with the matter said. The sources declined to be identified as the information was not yet public. Kasikorn Securities, brokerage unit of Kasikornbank, has also been hired as an advisor, a Kasikorn official said.

Last month, PTT invited banks to make pitches and then selected the three to work on the IPO, the people added.

PTT's retail division may be valued between $2 billion and $3 billion, the people said. One of the proposals being considered includes bringing in a strategic partner before the likely IPO in 2017, they added.

A successful listing would rank among Thailand's largest IPOs. BTS Group's $2.13 billion IPO holds the record for Thailand's biggest.

PTT, like other global energy companies hit by slumping oil prices, is trying to find new ways to fund its capital spending needs. PTT plans to invest 297 billion baht ($8 billion) during 2016-2020, of which 50.8 billion baht is earmarked for this year.

It is also catching up with the global trend that has seen a series of oil companies selling their low-margin fuel marketing businesses.

Convenience Store Model

PTT has 1,458 outlets, representing 40 percent of Thailand's petrol station market. The company has said it plans to invest 20 billion baht over the next five years to expand its gas service station network to 1,600.

The planned IPO would consist of the oil marketing business and PTT-owned Amazon coffee shops at the petrol stations, the official said.

PTT shares extended gains to trade up 2.3 percent after Reuters first reported that the company was studying doing a possible IPO, while the benchmark Thailand index was up 0.7 percent.

Unlike in Western markets, where non-fuel businesses - convenience stores, fast food operations, and services such as car washing - can account for more than half of a gas station's profits, the majority of PTT's profits comes from petrol sales.

By spinning off the business and introducing a strategic partner, PTT is hoping it can help boost the share of non-fuel business and improve its overall profit margin.

Such a deal will boost the value of the low-margin marketing business, bolster the group's finances and free up funds for investment in exploration and production.

PTT has previously raised the prospects of a retail IPO, but this is the first time it has hired banks to undertake a detailed study, underscoring the seriousness of its intent.

PTT's IPO plans comes two years after China's oil refiner Sinopec Corp raised $17.5 billion by selling almost 30 percent of its retail arm to 25 Chinese and foreign investors. Sinopec Retail plans to list the business at a later date.

Sinopec's marketing and distribution unit, which includes a wholesale business, has more than 30,000 petrol stations and more than 23,000 convenience stores, as well as oil-product pipelines and storage facilities.

The PTT official declined to comment on hiring of the banks and the timing of the IPO.

JPMorgan declined to comment. Phatra Securities did not offer an immediate comment.

Reporting by Denny Thomas, Saeed Azhar and Khettiya Jittapong; Additional reporting by Manunphattr Dhanananphorn; Editing by Martin Howell

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