Foreign investors gunning for petroleum retail market

JX Nippon Oil & Energy is receiving close to $15 million in the first year after acquiring Petrolimex shares. This, coupled with the fact that there are 29 petroleum import-export distributors in Vietnam, makes the petroleum retail market especially lucrative.

Enormous profit

In 2016, Petrolimex’s consolidated net revenue was VND123 trillion ($5.46 billion) and pre-tax profit reached VND6.3 trillion, or $279.4 million (up 68 per cent compared to 2015).

The petroleum giant will also pay dividend at the rate of 32.24 per cent, meaning investors will receive VND3,224 ($0.14) for each PLX share. The total amount Petrolimex will pay is estimated at VND3,736 billion ($165.7 million) for 1.16 billion outstanding shares.

Foreign investors gunning for petroleum retail market
An increasing number of foreign investors are looking for a slice in the Vietnamese petroleum retail market
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With this, JX Nippon Oil & Energy, Petrolimex’s only foreign strategic investor with 8 per cent (103,528,476) shares, will receive an enormous cash dividend of VND333.7 billion, tantamount to $14.8 million.

In April 2016, after nearly two years of negotiations, JX Nippon Oil & Energy officially acquired 8 per cent of Petrolimex’s share for around ¥20 billion, approximately $183 million. With Petrolimex’s positive business outcome, JX Nippon Oil & Energy’s investment bears fruits after just one year.

The state, represented by the Ministry of Industry and Trade, still owns the majority of Petrolimex. With 75.87 per cent of Petrolimex’s shares, or approximately 982 million shares, the state will receive more than VND3.16 trillion ($140.1 million) in dividend payments. The dividend payment will officially take place at the end of August 2017.

Petrolimex officially listed on the Ho Chi Minh City Stock Exchange (HOSE) on April 21, 2017 at VND43,200 ($1.9) per share. The current price of PLX shares is at VND69,000 ($3) per share.

In its 2016 annual report, Petrolimex concluded that the world oil market was at a low point due to continued oversupply. In the region, the oil market has made almost no developments, with large supply and decreasing demand pushing the equilibrium in buyers’ favour. This was probably the reason why Petrolimex easily passed its initial target of VND4 trillion ($177 million) in pre-tax profit, reaching VND6.3trillion ($279.4 million). The expected dividend payment rate of 8 to 15 per cent was also easily surpassed.

The success of Petrolimex also paved the way for the development of petroleum distributors in the last five years.

Small window filled with potential

Vietnam did not agree to open the petroleum market when joining the WTO and signing 11 free trade agreements, with the exception that companies investing in oil refineries in Vietnam can distribute their products.

Thanks to this, Petrolimex and JX Nippon Oil & Energy slipped through the window of opportunity with the South Van Phong oil refinery project.

According to Cao Hoai Duong, CEO of PetroVietnam Oil Corporation (PV Oil), foreign investors are gunning for the Vietnamese petroleum retail market because of its enormous potential for growth based on petroleum consumption per capita and economic potential.

Data from import statistics and Binh Son Refining and Petrochemical Company Limited (BSR) shows that petroleum consumption in Vietnam is currently between 17 and 19 million tonnes per year, of which around 65 per cent is imported.

Petrolimex currently holds 44 per cent of the domestic oil market, with over 50 per cent being directly sold to consumers, around 20 per cent directly sold to industrial customers, and over 50 years of experience in petroleum trading. All these give Petrolimex a huge market advantage.

However, according to the Competition Law, Petrolimex cannot increase its market share above 50 per cent. In addition, the state will hold 65 to 75 per cent of its share, limiting Petrolimex’s opportunity to attract more foreign investors and increase market share. Therefore, the remaining oil distributors will become windows for foreign businesses to join the Vietnamese petroleum market.

PV Oil, the second largest petroleum distributor in Vietnam (controlling 20 to 25 per cent of the domestic market), is looking to sell up to 40 per cent of its shares to strategic investors. However, to enter the Vietnamese petroleum retail market through PV Oil, foreign businesses need to also acquire shares of BSR, which is responsible for managing and operating Dung Quat Oil Refinery.

Binh Son is also planning for equitisation in November 2017.

By Thanh Huong