Asian Energy Companies Go Public to Grow Business

Quite a few privately-owned oil and gas companies in the Asia Pacific region have decided to launch an initial public offering (IPO) on regional bourses, or stock markets, this year as they seek funds for business expansion. Firms that have taken this route include those engaged in exploration and production (E&P) as well as petroleum industry service providers. These companies listed shares on stock markets in Hong Kong, Malaysia and Singapore, with one planned for Australia in October.

Going Public

Funding has always been a major issue for companies, especially small privately-held ones. They “go public” – or are publicly listed – for a variety of reasons, but the ultimate aim is usually to raise additional capital.

Firms go public to raise capital and potentially broaden opportunities for future access to capital, according to United States Securities Exchange Commission (SEC). The move can boost liquidity for a company’s stock, allowing owners and employees to more easily sell stock as well as to acquire other businesses with the public company’s stock. Furthermore, such firms can attract and compensate employees with public company stock and stock-option compensation as well as create publicity, brand awareness, and prestige for a firm, the SEC added. 

An IPO can help firms get financing outside of the banking system and reduce debt. It helps trim the overall cost of capital for companies by giving them more leverage in negotiating interest rates with banks. Companies can then cut interest costs in servicing existing debt. More funds raised through an IPO will reduce the risk of ownership in the company as the risk is spread among a larger group of shareholders. An IPO also enables original shareholders to cash out some of their profits while still retaining a percentage of the company. 

Asian Companies Going Public

China’s Sinopec Engineering, an engineering and construction services provider, was one of the regional companies seeking a public listing. China Petrochemical Corp. (Sinopec), China’s second largest oil and gas producer and the country’s top refining and petrochemical company, amalgamated eight operating subsidiaries in September 2012 to form the company. It was listed on Hong Kong Exchanges and Clearing Ltd. in May. After the IPO, the firm earmarked around 40 percent of the $1.8 billion raised through the IPO for engineering and construction operations, 23 percent for research and development, 11 percent for overseas operations, 9 percent for equipment purchases and the rest for information systems upgrades and working capital.

In Malaysia, CLIQ Energy Bhd was one of two petroleum firms listed on local exchange Bursa Malaysia this year. The company, an E&P firm specializing in the acquisition and development of upstream assets in Asia and Oceania, listed April 10 as a Special Purpose Acquisition Company (SPAC). SPAC was described as one with “no business to speak of other than a plan to buy corporations that will be folded into the entity,” Malaysian daily The Star said. Bursa gave these entities 36 months from the date of listing to complete the asset acquisitions.

CLIQ raised $120 million from the IPO, with 10 percent of the funds used for operating expenditures and the remainder for acquisition of upstream assets. It intends to buy “small and medium oil fields [in Asia Pacific] with low to moderate risks, and the rights that allows us to take part in the development and production of these fields … we are looking to acquire production-ready and pre-development assets, not exploration assets, as they present higher risks,” CLIQ Chairman Azmi Mohd Ali told Bernama news agency. Since the listing, CLIQ has shortlisted five qualifying upstream assets in Indonesia, Malaysia and Papua New Guinea from a pool of 38 proposals for the proposed acquisition.

Another E&P company Sona Petroleum Bhd joined CLIQ July 30 when it listed as a SPAC on Bursa. The company raised $170 million from the IPO, with 90 percent of the proceeds available for asset purchases – just like CLIQ. Sona plans to acquire producing E&P assets in Southeast Asia, Middle East and selected countries in Africa, especially Algeria, Angola, Chad, Congo, Ethiopia, Kenya, Mozambique, Nigeria, Tanzania and Uganda.

Over in Singapore, KrisEnergy Ltd., an independent Southeast Asia-focus E&P company, was listed on the Singapore Exchange Ltd. (SGX) July 19. The firm, which includes Keppel Corp. and First Reserve Corp. among its cornerstone investors, raised $240.37 million from the IPO.

“The injection of new capital will allow us to continue pursuing our focused strategy of discovering hidden value in significant assets to bring oil and gas to market,” Keith Cameron, KrisEnergy’s CEO said in a press release.

The company will use approximately $60.7 million of the net proceeds for acquisitions (including farm-ins), $112.6 million for planned capital expenditures (including exploration, appraisal and development of existing assets) and $29.9 million for general working capital.

Rex International Holdings Ltd., another independent oil exploration firm, went public on SGX’s Catalist Board July 31. It raised $67.7 million through the listing exercise. Rex plans to use the majority of its net proceeds for active drilling programs in the Middle East and Norway; direct investments into new oil and gas opportunities; and general working capital. In mid-August, the company, Norwegian private equity investor Pareto Staur SPV1 AS and other minor investors created a joint venture firm – Rex Caribbean Oil Company Ltd. – to acquire three new onshore E&P opportunities in Trinidad and Tobago. The transaction involves investment in the Inniss-Trinity field, the South Erin Block and the Cory Moruga Block "E". Since the IPO, a subsidiary of Rex signed up for a one-month drilling program – starting in mid-October – in its Block 50 concession offshore Oman.

IPOs in the Pipeline

A Singapore-based offshore marine services provider POSH Semco Pte Ltd. is reportedly keen on a SGX listing to raise $237-395 million, according to a July 29 Reuters report. The IPO may be poised for launch in September or October and POSH Semco’s market capitalization could reach around $1 billion after it goes public, a source told Reuters.

Sino Australia Oil and Gas Ltd., which specializes in maximizing oil and gas extraction from mature Chinese fields, hoped to raise $20.53 million from its IPO launched April 29. Sino Australia is the Australian holding company of Zhaodong Huaying Co. Zhaodong Huaying provides enhanced oil and gas recovery services and underground work consultations for state-owned enterprises and national oil companies in China. Sino Australia will use the IPO funds to expand its operation beyond the Daqing oil field to fields in north-west and central China an also to “upscale the company’s equipment to meet the increasing demand from these area,” the firm said in a press release May 22. The listing on the Australian Securities Exchange (ASX) was delayed in July as “investor sentiment shifted,” the firm said Aug. 27. Sino Australia has now been given approval by Australian regulators to listing on ASX Oct. 25.

Malaysian conglomerate UMW Holdings Bhd’s subsidiary UMW Oil & Gas Corp. (UMW-OG) plans to raise around $777 million in an IPO on Bursa, which approved the listing July 31. The sale could help the company “accelerate the growth of the oil and gas business … unlock the value of our investments,” UMW Holdings Chairman Asmat Kamaludin told Bloomberg. UMW-OG, which provides offshore drilling – through ownership of three jackups and one semisubmersible – and oil field services, expects to use the new funds to “buy and maintain rigs, upgrade machinery and pay debt to its parent UMW Holdings,” according to a Bloomberg report.

Ranhill Withdraws Listing

While most firms listed on the respective bourses in the region without incidents, Malaysia’s Ranhill Energy and Resources Bhd was an exception after it controversially withdrew from a Bursa listing July 26.  This follows a disclosure by Malaysia's national oil and gas firm Petroliam Nasional Bhd (Petronas), which suspended an affiliate's license following a review of a construction project. The affiliate Perunding Ranhill Worley Sdn Bhd (PRW) cannot bid for any projects from Petronas without the license.

"Given recent events and after consulting the Principal Adviser ... the Board of Directors of the Company (Board) has decided to withdraw the application for the IPO," Ranhill said in a company announcement aborting the plan to raise $236 million for business expansion.

Meanwhile, Petronas lifted its suspension of PRW for upstream activities although the Ranhill affiliate remains suspended from participating in downstream activities.

Private companies cited above managed to raise about $2.4 billion on Asia Pacific bourses so far this year, with another $1.2 billion, currently in the IPO pipeline, expected to be added soon. The total amount raised suggests that funds are indeed available for oil and gas companies to tap on as they expand their businesses. However as the Ranhill Energy and Resources IPO withdrawal has highlighted, the investment community will shun companies whose housekeeping is questionable, and public scrutiny is something that private companies seeking a stock market listing will have to deal with.