Aug 2015 Financial News
NGC: We’re confident in the IPO
Aug 20, 2015
Two of state-owned National Gas Company’s (NGC) top officials have expressed confidence in the company’s offer of 75.8 million shares in TTNGL, a holding company for about 19 per cent of Phoenix Park Gas Processors.
In August, 2013, NGC acquired an additional 39 per cent stake in Phoenix Park from US energy giant ConocoPhillips for US$600 million ($3.8 billion), taking its overall shareholding in the company to 90 per cent.
NGC, in accordance with a mandate from the Cabinet, is offering 49 per cent of the Phoenix Park shares it acquired in 2013, to local individuals and institutions at $20 a share. If the initial public offering of shares is fully subscribed, NGC will raise $1.5 billion, which is targetted to go back to the Government to reduce the country’s fiscal deficit for 2015.
In an exclusive interview with the Business Guardian on Tuesday afternoon, the officials—company president, Indar Maharaj, and chief financial officer, Anand Ragbir—expressed confidence that the prices of Phoenix Park’s products would be sold for higher prices than currently when global oil prices recover.
Phoenix Park produces propane, butane and natural gasoline, most of which is exported to markets in the Caribbean and Latin America for US dollars.
They said the coming on stream of BP’s Juniper platform in 2017 should ease both Phoenix Park’s natural gas curtailment issues and the fact that the gas it takes in now has less liquids than in the past.
An NGC table reproduced in the last Sunday BG reveals that the liquids in Phoenix Park’s natural gas input declined by 31 per cent between 2010 and 2014.
The NGC executives also pointed to $266 million on TTNGL’s balance sheet that is available for distribution as dividends should the directors of the company be so inclined. The $266 million comprises $241.3 million that is due from the parent company and $24.7 million in dividend receivable.
Maharaj said: “The $266 million is cash that is available to the company that is available for distribution as dividends if the directors of the company choose to do so.”
Ragbir said the $266 million due from the parent company and dividends represents $1.72 a share that is available for distribution as dividends.
Asked whether $1.72 a share will be paid out to TTNGL’s new shareholders as a dividend, Maharaj said: “We as NGC cannot make that decision. When TTNGL becomes a publicly listed company, the board will have to make that decision.
“As the majority shareholder in TTNGL, we can expect that it would be paid, but we can’t say that for a fact.
“NGC chose to leave the money in TTNGL so that the new company would have to make a decision on its use.”
Asked if the potential payment of $1.72 per share as a dividend was a sweetener that increases the attractiveness of the IPO, Maharaj said: “Most definitely. I am sure that if I were an investor, I would find that attractive.”
They said the first dividend would be made within a few months of TTNGL’s listing in October, following the constitution of the TTNGL board.
They said there was nothing preventing the new TTNGL board from taking a decision to distribute most of the company’s first half profit as a dividend, plus some or all of the $1.72 a share “goodwll cash.”
Maharaj said he saw no reason for the company to leave the money on TTNGL’s balance sheet.
Responding to a question on the lack of clear guidance on TTNGL’s future dividend policy—compared with the First Citizens prospectus which states that the bank will pay out between 45 and 55 per cent of net income as an annual dividend—Maharaj said: “We have applied the dividend policy at PPGPL to TTNGL. PPGPL’s dividend policy states that the directors can choose to allocate up to 99 per cent of its profits, after you back out the expenses, as a dividend.
“If Phoenix Park is planning a major capital expenditure programme, the board may take a decision to set aside some funds. It would be for the TTNGL board to decide.” (See box for 2015 to 2020 capex)
The executives said the decision to go with a holding company structure rather than allowing new shareholders to own shares directly in Phoenix Park was based on the choice of the best option.
Ragbir said: “The holding company structure provides shareholders with a measure of protection as NGC will continue to own 51 per cent of the shares in TTNGL. The holding company structure also follows the NEL model.”
Maharaj added that because there were preexisting shareholders’ agreement at Phoenix
Park, direct ownership of shares in that company would have meant having to amend those agreements.tax efficiencya direct so that directors can decide there was clear of the bank going forwardAsked about TTNGL’s dividend policy going forward
Trafigura selling cooking gas
The NGC executives confirmed that a Dutch company named Trafigura had been engaged by Phoenix Park, after a competitive tender process, to market some of its cooking gas exports (cooking gas is propane and butane).
The three-year contract began last year. “Trafigura has come in with far more attractive prices for our cooking gas exports than we received previously. We now receive a premium compared with propane and butane sold at Mont Belvieu, the US benchmark for natural gas liquids,” said Maharaj, adding that Phoenix Park is moving to sell all of its product, based on competitive tenders and bidding.
Ragbir said the risk of marketing cooking gas is not Phoenix Park’s but the marketer.
Asked if NGC was aware that Trafigura had been involved in a political scandal in Jamaica some years ago, Maharaj said: “We have done our due diligence on all the companies that we have engaged on contract. There is nothing in there that should debar us from doing business with those companies.
“In fact, Trafigura does business with Atlantic LNG and with BP. They also do trading business in the US.”
Trafigura was involved in a long-running scandal in Jamaica since 2006 when the opposition Jamaica Labour Party revealed that the firm, which traded oil for Jamaica on the international market, had transferred US$475,000 (J$31 million) into an account operated by the general secretary of the ruling People’s National Party at the time.
According to a Wikileaks document from the US embassy in Jamaica at the time, the money was used to fund the ruling party’s “lavish” annual convention.
A minister in the PNP administration at the time referred to the money as a campaign “donation,” but the company said its dealings in Jamaica were "strictly commercial."
A report in the Jamaica Gleaner last November stated that Trafigura controls 90 per cent of the LPG (cooking gas) produced by T&T and that the company moves 1.5 million tonnes of LPG in the region each month.
Q: Can NGC disclose the Q2 financial results for PPGPL and TTNGL?
A: Our legal counsel has advised that neither the Securities Act nor the By-
Laws provide for the filing of financials during an offer period and it is therefore recommended that we seek approval from the Trinidad and Tobago Security Exchange Commission (TTSEC). We have engaged the process for approval from the TTSEC.
Q: PPGPL issued two notices which were included on its website. What are those about?
A: PPGPL has issued two expressions of Interest (EOIs) to the market which involve the following
(1) the purchase of propane and/or butane and
(2) the lease of spare storage capacity in the product storage tanks.
The objective of these EOIs is to gather information to evaluate the feasibility of these projects. These projects are currently under technical and financial evaluation. No investment decision has been made at this time.
Q: How many marketers does PPGPL have for its products?
A: PPGPL currently has nine marketers for its products: Atlantic LNG, Glencore, Aerogas, Rubis Eastern Caribbean/Rubis Cayman, BP Oil International, Repsol, Shell, Trafigura, Petrotrin
Q: Are the contracts of these marketers based on a take or pay system?
A: We have one contract that is take or pay.
Phoenix Park Gas Processors Limited
Capital Expenditure 2015-2020
Year Capex (US$000)
2015 18,048
2016 9,047
2017 9,267
2018 10,089
2019 9,218
2020 9,620
Total 65,289
Source: NGC
These projects are expected to be internally funded once approved.
Source:
Business Guardian, BG4
Thursday August 20, 2015
