The race to become a strategic partner of PetroVietnam Oil Corporation (PV Oil) is heating up. At a roadshow in Ho Chi Minh City last week, the firm revealed that it is now being courted by eight hopeful investors, six of which hail from overseas.
The foreign potential partners are major oil corporations from around the world: Royal Dutch Shell (UK/Netherlands), Kuma (Switzerland), SK (South Korea), Idemitsu Kosan (Japan), Kuwait Petroleum International, and an undisclosed firm from the Middle East. The two Vietnamese investors in the race are SAM Holdings and Sovico Holdings.
The winning bidder can buy 44.7 per cent of PV Oil, which is Vietnam’s second-largest oil retailer and sole exporter of crude oil. This investor is expected to have a strong financial background, as well as in-depth experience in the oil-and-gas sector. According to the auction rules, the strategic partner cannot sell their stake at PV Oil within the next 10 years, which means they have to show long-term commitment to improving the oil firm.
There are some interesting things to note about PV Oil’s suitors. Firstly, Idemitsu Kosan and Kuwait Petroleum International are not newcomers to the Vietnamese market. The two firms are investing in the $9.2 billion Nghi Son Refinery in the central province of Thanh Hoa, Vietnam’s second oil refinery.
PV Oil is currently a major customer of Nghi Son Refinery, having signed agreements to buy products from the latter. With a significant PV Oil stake, Idemitsu Kosan and Kuwait Petroleum International would be likely to secure the output for the refinery, which is soon to come on stream.
Idemitsu Kosan recently launched the first foreign-owned petrol retailer in Vietnam, Idemitsu Q8.
This means that if the two partners manage to win the bid at PV Oil, they will also expand their market share in an insta. At present, PV Oil holds 25 per cent of the market share for petrol retailing in Vietnam.
However, these two bidders will have to face strong competition from Royal Dutch Shell. The British-Dutch oil giant is a long-standing player in the Vietnamese market, having first opened a Vietnamese oil plant 17 years ago
Last November, executives from the group met with officials of the Ministry of Industry and Trade and expressed their intention to partner with Vietnamese firms for oil and gas manufacturing.
The Vietnamese investor Sovico is another interesting case. Sovico is owned by billionaire Nguyen Thi Phuong Thao, a woman most famous for running the private carrier Vietjet. One of the greatest risks for the budget airline is fluctuations in global oil prices, which can have a marked impact on its earnings. By becoming a strategic partner of PV Oil via Sovico, Vietjet could enjoy a stable source of fuel for its fleet and eliminate risks in global oil prices.
Viet Capital Securities, the advisor in this deal, pointed out that airplane fuel could hold great potential for PV Oil. This market is expanding by 8 per cent every year thanks to Vietnam’s growing aviation industry, but there are only two existing providers of airplane fuel in the country. PV Oil can seize this opportunity before competition heats up.
Another appeal of PV Oil is its huge cash and near-cash reserves, which amount to $300 million. This eliminates burdens on interest rate payments and allows the oil firm to carry out its plans quickly, said the advisor.
Along with the share sale to strategic investors, PV Oil will offer 20 per cent of its shares to the public on January 25. The pricing will start at VND13,400 ($0.60) a share. The oil firm is expected to list 90 days after this initial public sale.