Petron stake sale to gov’t seen as credit positive — CreditSights

A POTENTIAL sale of Petron Corp. to the Philippine government could be “modestly credit positive in the longer-term,” as it may improve financial support and access to funding, according to financial research firm CreditSights.

“Should the proposed sale indeed go through, we view a potential stake sale in Petron to the government as modestly credit positive in the longer-term,” CreditSights said in a report authored by Jonathan Tan Jun Jie, Nicole Chua, and Lakshmanan R.

Petron is the country’s largest downstream oil player and the only integrated oil refining company.

Last week, President and Chief Executive Officer Ramon S. Ang renewed his offer to sell the company back to the government as the country faces supply issues and rising fuel prices.

He said the sale could be carried out in tranches, allowing the government to avoid a large upfront payment.

San Miguel Corp. (SMC), led by Mr. Ang, holds a 71.8% stake in Petron and could sell up to a 35.6% stake to the government without triggering a “change in control” provision.

If the government becomes a stakeholder, there is a higher likelihood it would provide support if the company encounters financial difficulties, CreditSights said.

Government participation could also improve access to bank financing, potentially lowering funding costs and strengthening liquidity, it added.

The government’s higher credit rating relative to SMC may also provide additional credit support.

“We expect Petron will be considered strategically important to the Philippine government if the deal goes through, given Petron operates the country’s sole refinery supplying 35%-40% of total domestic fuel needs,” CreditSights said.

The firm said the deal could be “slightly credit negative” in the near term due to fuel regime changes, potential debt-funded capital expenditures, and concentration risks in its two main refineries.

However, it said these risks may be outweighed by the potential benefits.

CreditSights maintained its “Outperform” recommendation for Petron’s $475-million perpetual bond, indicating the bonds may deliver higher returns than peers. — Sheldeen Joy Talavera