Energy Stocks: Companies Focus On Debt Restructuring

Petrochemical and energy companies in the Gulf are starting off the year with a focus on debt restructuring. The Abu Dhabi Energy Company (TAQA) is planning to issue a bond this year after issuing two bonds worth a total of $1.5bn in December. The company also reached an agreement in late December to sell its oil and natural gas assets in Canada, with “the sale anticipated to close in March 2012,” TAQA stated in a filing to the Abu Dhabi Securities Exchange (ADSE).

On the ADSE, Dana Gas shares tumbled to their lowest point in two years after the company failed to provide details on how it plans to repay a $1bn sukuk due in October. The company’s debt woes contributed to a 7.5% slump in stock price in one day – the biggest decline in one month – closing on 15 January at 0.37 fils per share. However, on 17 January Dana Gas announced it planned to honor obligations related to the $1bn sukuk and its stock price rebounded 5.8%. In 2011 it had fallen 38%, which analysts believe is due to concern about its ability to repay debt, as well as problems receiving payment for projects in Egypt, where the majority of its output originates. On 22 December Dana Gas’s stock price had fallen to a three-year low when Egyptian media reported that Egypt planned to delay a $148mn payment to the UAE-based company.

In November CEO Ahmad al-Arbeed said that Dana Gas is owed approximately $200mn by the government of Egypt for natural gas sales. The company’s performance is currently driven by its operations in Egypt and Iraq; as such, Global Investment House (GIH) last week reduced Dana’s profitability forecast by 19% and 47% for 2012 and 2013, respectively, in light of expected lower drilling activity in Egypt. Dana commented that it “is progressing constructive discussions with the Egyptian Government covering the delayed payments due from government owned entities owing to the unrest in that country over the past year.” In 2011, a total of $177mn in cash attributable to its share of receivables was collected from Egypt and Kurdistan. The company’s board is also considering an “update” on its 3% stake in MOL, Hungary’s largest oil refiner, according to a statement to the ADSE on 5 January.

The declines in the energy sector contributed to a 2.37% drop in the ADSE’s total market value since the beginning of the year, although some of the losses were clawed back at the end of the week.

First Petchem/Refinery Earnings Scupper Saudi Rally

Saudi’s Tadawul all share index (TASI) was initially lifted last week on the back of strong performance by most listed petrochemical companies, despite bellwether stocks such as Saudi Basic Industries Corporation (SABIC) putting in a lukewarm performance. Later in the week, however, disappointing earnings from SABIC and refiner Petro Rabigh scuppered the rally, dragging the TASI down almost 2%, although it recovered at the week’s close. Of the 12 Saudi petrochemical companies that have reported 4Q11 figures, seven saw profits fall, while the remaining five saw better results (see table).

Petro Rabigh made a profit of SR50.3mn ($13.4mn) in 4Q11, which was down 4.4% on 4Q10’s SR52.6mn ($14mn). The company blamed lower refining margins for the fall. SABIC missed analysts’ forecasts to report a 10% drop in fourth quarter profit to SR5.24bn ($1.4bn) from 4Q10’s SR5.81bn ($1.55bn). This came after the company had posted record profits in the second and third quarter last year. SABIC’s CEO Muhammad al-Mady said that the earnings were impacted by the global economic slowdown, but that it had started to see an improvement in prices.

The company is currently facing claims that exports such as monoethylene glycol are being dumped in Turkey, according to a senior Saudi government official. SABIC’s performance remains strong, however, with expansions such as the Ibn Rushd facilities and a new polycarbonates plant in China on track, requiring capital expenditures of $4bn over the next two years, according to GIH. “Shares of subsidiaries such as Yansab and Kayan should also be increasing over the next few years,” said a Saudi market expert. “Yansab is mainly catering to the demand arising from Asian countries, where demand for petrochemical products is expected to remain strong.” SABIC and China’s Sinopec signed on 15 January an agreement to explore new business opportunities and confirmed commitment to earlier agreements such as a polycarbonate collaboration.

Energy demand in Asia will almost double by 2035, according to the International Energy Agency (IEA), while consumption in the OECD countries will remain almost constant. As such, other Saudi companies such as Saudi International Petrochemical Company (Sipchem) are focusing on exposure to emerging markets – particularly China, said the market expert. Sipchem is increasing its product range to include high-margin petrochemical products, which will move the company away from reliance on methanol based products, according to Umar Faruqui, an analyst at GIH.   

 Saudi Petrochemical/Refining Trading And Financial Data

Source : Adapted from Tadawul Data.

*Based on four quarters of financial data to 3Q11, M=minus ratio due to losses.

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