INTERACTIVE: PCG frees up capital for future projects after Aramco deal

SINGAPORE (ICIS)–Malaysia’s PETRONAS Chemicals Group (PCG) will be freeing up capital for future investments by partnering state-owned oil giant Saudi Aramco in its glycols and polymers project in Johor, analysts said.

PCG has agreed to sell half its stake in wholly-owned subsidiary PRPC Polymers – which operates the project – to Saudi Aramco for $900m by March next year.

The deal will help strengthen PCG’s financial position and ease any strain on the firm’s balance sheet from the capital-intensive project, analysts said.

The polymer and glycols project in Malaysia’s southern Johor state is expected to have a combined 3.15m tonne/year capacity. It is currently under construction and was initially estimated to cost $2.6bn.

PRPC Polymers’ product slate includes high density polyethylene (HDPE), linear low density polyethylene (LLDPE), polypropylene (PP) and monoethylene glycol (MEG). For its 400,000 tonne/year HDPE unit, the company had announced earlier this year that it will use LyondellBasell’s PE process technology.

As of August 2017, the polymers and glycols project was 49% complete, with estimated cost of the entire project bumped up to $3.2bn, according to Malaysia-based MIDF Research, a unit of MIDF Amanah Investment Bank.

“We are positive on the divestment as PCG will now have the financial and technical support of a strong oil major,” it said.

The PRPC Polymers deal announced on 2 October followed an agreement between the Saudi oil giant and PCG’s parent firm and Malaysian state-owned energy major PETRONAS on 28 February 2017 on joint ownership of the planned Refinery and Petrochemical Integrated Development (RAPID) project in Johor.

The polymers and glycols project is being built within RAPID, which is part of PETRONAS’ Pengerang Integrated Complex (PIC).

Saudi Aramco will be supplying up to 70% of the crude oil requirement of PETRONAS Refinery & Petrochemical Corp (PRPC)’s refinery and cracker project, which will, in turn, provide feedstocks to PRPC Polymers’ plants.

PRPC Polymers was incorporated in early 2015 to develop, construct, commission and operate polymers and glycol plants in Malaysia.

“The 50% participation by Saudi Aramco will help alleviate any financial strain on PCG’s balance sheet for future heavy capex [capital expenditure] requirements,” MIDF said.

The deal will cut in half PCG’s projected annual capex to Malaysian ringgit (M$) 2bn ($473m) in 2017 and 2018, and to M$2bn in 2019, according to Japanese brokerage Nomura in a research note.

“We maintain our current capex forecast of MYR4.5bn for each year over 2017-2019, as the deal is yet to complete,” it said.

PCG’s main rationale for the stake sale is the sharing of project, operational and financial risks with Saudi Aramco.

The company’s project at RAPID is still in the construction phase and is expecting “high risks until completion, scheduled for the second half of 2019”, Nomura said.

The deal will allow PCG to have a “positive cash flow impact, as 50% of the capex will be shared by the partner”, it said.

“Subsequently this would provide PCG with more financial flexibility to look at other growth projects,” Nomura said, adding that PCG will be able to leverage on Saudi Aramco’s  experience in operating large integrated petrochemical projects.

($1 = M$4.23)

Picture: PETRONAS worker at a company facility (Source: PETRONAS)

Focus article by Nurluqman Suratman