INVESTMENT OPPORTUNITY PAKISTAN STATE OIL COMPANY LIMITED - PDF by ime33023

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									                                                                                       DECEMBER 2006




                          INVESTMENT OPPORTUNITY: PAKISTAN STATE OIL COMPANY LIMITED
C O N F I D E N T I A L
AN D
P R I V A T E
S T R I C TL Y
L I M I T E D




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I N V E S T M E N T   O P P O R T U N I T Y :   P AK I S T A N          S T A T E               O I L        C O M P A N Y                         L I M I T E D



                                                                                                                                                                  Agenda




                                                                                         Industry overview
                                                                                                                                       Executive summary


                                                                                                               Investment highlights




                                                                 Financial performance
                                                                                                                                       1




                                                                 9
                                                                                         6
                                                                                                               3
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1
                   An opportune time to invest in Pakistan

                                                            Pakistan emerging as a promising opportunity for foreign investment
                                                           Pakistan isis emerging as a promising opportunity for foreign investment
                                                                 Improved geopolitical positioning
                                                               Improved geopolitical positioning
                                                            The Government of Pakistan (“GOP”) committed to development by:
                                                           The Government of Pakistan (“GOP”) isis committed to development by:
                                                                Facilitating stable political environment
                                                               Facilitating a a stable political environment
                                                                 Implementing an aggressive reforms agenda
                                                               Implementing an aggressive reforms agenda

                                                            GOP has recommitted itself to privatize Pakistan State Oil Company Limited (“PSO”)
                                                           GOP has recommitted itself to privatize Pakistan State Oil Company Limited (“PSO”)
                                                                 Intends to divest 51% shareholding in PSO with management control to a qualified investor
                                                               Intends to divest a a 51% shareholding in PSO with management control to a qualified investor
                                                                JPMorgan advising the GOP
                                                               JPMorgan isis advising the GOP

                                                              a deregulated environment with strong growth indicators the demand for Petroleum Oil and
                                                           InIn a deregulated environment with strong growth indicators the demand for Petroleum Oil and
                                                             Lubricant (“POL”) will continue to grow
                                                           Lubricant (“POL”) will continue to grow
                                                                 Per capita consumption of oil per annum amongst the lowest in the world at 0.10 tonnes (“tons”)
                                                               Per capita consumption of oil per annum isis amongst the lowest in the world at 0.10 tonnes (“tons”)
                                                                 Independent regulator, Oil and Gas Regulatory Authority (“OGRA”), was formed 2002
                                                               Independent regulator, Oil and Gas Regulatory Authority (“OGRA”), was formed inin 2002
                                                                 Oil prices set by Oil Gas Regulatory Authority (“OGRA”) on a fortnightly basis
                                                               Oil prices set by Oil && Gas Regulatory Authority (“OGRA”) on a fortnightly basis
                                                                 Real Gross Domestic Product (“GDP”) maintaining a robust upward trend
                                                               Real Gross Domestic Product (“GDP”) isis maintaining a robust upward trend
                                                                 Expected increase competition with GOP issuing new licenses
                                                               Expected increase inin competition with GOP issuing new licenses
                                                                 Growing oil gas sector especially in cleaner fuel
                                                               Growing oil && gas sector especially in cleaner fuel

                                                            PSO uniquely placed as a leading oil marketing company (“OMC”) of POL products in a growing
                                                           PSO isis uniquely placed as a leading oil marketing company (“OMC”) of POL products in a growing
                                                            market
                                                           market
                                                               PSO supplied 65% of the country’s total POL consumption (approximately 15.3 million tons) for FY06
                                                             PSO supplied 65% of the country’s total POL consumption (approximately 15.3 million tons) for FY06
S U MM ARY




                                                               with market share 78% black oil and 57% in white oil
                                                             with market share 78% inin black oil and 57% in white oil
                                                               Revenue (FY06)—US$ 5.875 billion; EBITDA (FY06)—US$ 216 million (3.7% margin); Net profit (FY06)—US$
                                                             Revenue (FY06)—US$ 5.875 billion; EBITDA (FY06)—US$ 216 million (3.7% margin); Net profit (FY06)—US$
                                                               125 million; Current market capitalization¹—US$ 866 million
                                                             125 million; Current market capitalization¹—US$ 866 million
                                                               Excellent value proposition
                                                             Excellent value proposition
                                                                   Largest OMC Pakistan—approximately 3,700 retail outlets
                                                                 Largest OMC inin Pakistan—approximately 3,700 retail outlets
E X E C U T I VE




                                                                   23 depots and installations – – almost 81% of total national storage, i.e. around 860,000 tons
                                                                 23 depots and 9 9 installations almost 81% of total national storage, i.e. around 860,000 tons
                                                                   PSO has strategic investments related businesses such as refining and distribution
                                                                 PSO has strategic investments inin related businesses such as refining and distribution
                      Note: Fixed exchange rate applied: PKR/USD = 60.0
                      ¹ As at November 28, 2006

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I N V E S T M E N T   O P P O R T U N I T Y :   P AK I S T A N          S T A T E               O I L        C O M P A N Y                         L I M I T E D



                                                                                                                                                                  Agenda




                                                                                         Industry overview
                                                                                                                                       Executive summary


                                                                                                               Investment highlights




                                                                 Financial performance
                                                                                                               3




                                                                 9
                                                                                         6
                                                                                                                                       1
                                                                                                                                                           Page




3
                      PSO is Pakistan’s dominant OMC…
                          Investment highlights
                          Investment highlights                                                      POL products’ domestic market share by company―FY06
                                                                                                     POL products’ domestic market share by company―FY06
                             Largest oil marketing company in Pakistan
                                Market share of over 78% in Black Oil and around 57% in White Oil                                 Total PARCO
                                Overall 65% market share in POL products sold in local market                                                         Admore
                                                                                                                     Attock Ref 5%
                                                                                                                                                        1%
                             Around 3,700 retail outlets across the country                                                6%
                                1,459 refurbished outlets commissioned in the last 7 years                           Caltex
                                Addition of 209 leased retail outlets in FY06                                             6%
                             Vast infrastructure of 9 installations and 23 depots                                         Shell

                                Total storage capacity of some 860,000 tons - 81% of country’s                            17%
                                                                                                                                                             PSO
                                storage capacity
                                                                                                                                                             65%
                                Well laid out pipeline infrastructure between Port Qasim terminal
                                and its major installations including Zulfiqarabad Oil Terminal
                                (“ZOT”), Pipri Marshalling Yard (“Pipri”) and Buffer terminal       Source: PSO

                             Supply chain supported by a strong tank-lorry fleet and railway
                             wagons                                                                  PSO has strategic investments in related businesses
                                                                                                     PSO has strategic investments in related businesses
                             Strong management team with multinational exposure and significant
                                                                                                     Company                        Holding Comments
                             experience in the oil & gas industry
                                                                                                     Joint Installation of              62%     Storage facility operated by PSO
                             Broad customer base including the retail and industrial, as well as     Marketing Companies                        Maximum daily throughput capacity
                             aviation, marine and Government/Armed Forces sectors                    (“JIMCO”)                                  of 17,000 kilo litres
                             Only OMC operating at Allama Iqbal International Airport, Lahore and    Asia Petroleum Limited             49%     Operates an 82 km pipeline
H I G H L I G H T S




                             at Sialkot International Airport
                                                                                                                                                Annual capacity of 3.6 million tons
                             PSO has entered into an agreement with Daewoo PK to take over and       Pak Grease                         22%     Manufacturer of specialized grease
                             operate its 10 Motorway sites                                           Manufacturing                              Principal clients include Pakistan
                             Robust PSO Cards infrastructure of 1,200 Point-of-Sale Terminals in     Company                                    Steel and Armed Forces
                             over 170 cities                                                         Pakistan Refinery                  18%     Pakistan's third largest refinery
                                                                                                     Limited                                    Annual refining capacity of 2.2
                             ERP solution SAP implemented at all locations
                                                                                                                                                million tons
I N V E S T M E N T




                             PSO imports majority of Pakistan’s two deficit petroleum products
                                                                                                     White Oil Pipeline                 12%     Joint venture with Shell (26%),
                             HSD and FO
                                                                                                     Project                                    Caltex (11%) and Parco (51%)
                             Recipient of Top 25 Companies Award, since the last 18 consecutive                                                 817 kilometer, 26 inch diameter
                             years                                                                                                              dedicated refined product pipeline
                                                                                                    Source: PSO

                                                                                                                                                                                      4
                      …with a strong industry presence
                          Business description
                          Business description                                                         Capitalization (in millions except price per share data)
                                                                                                       Capitalization (in millions except price per share data)
                            PSO is the leading player in the retail sector                              Market price (Nov 28, 2006)                             PKR               302.80
                              Market shares of approximately 45% in motor gasoline and 59% in           Market capitalization                                   PKR               51,936
                              diesel oil                                                                Market capitalization                                   USD                  866
                            The industrial division enjoys high volumes and generates steady            Net debt                                                PKR                6,459
                            profitability and cashflows                                                 Net debt                                                USD                  108
                              PSO has exclusive long term fuel supply agreements with                   Enterprise value                                        PKR               58,394
                              Independent Power Producers                                               Enterprise value                                        USD                  973
                              Primary product is FO in which PSO has a market share of                  2006 P/E                                                                     6.9
                              approximately 79%
                                                                                                        2006 EV/EBITDA                                                               4.5
                            PSO is the market leader in aviation fuels with nearly 61% market share   Source: Karachi Stock Exchange & PSO annual report 2006
                            locally                                                                   Note: Fixed exchange rate applied: PKR/USD = 60.0
                              Has operations at 8 airports and supplies fuel to international and
                              domestic airlines                                                       Shareholding structure
                                                                                                      Shareholding structure
                              Signed agreement with Sialkot International Airport to be the sole
                              supplier of refueling facilities
                              PSO achieved 30% share of JP-1 export to Afghanistan during FY06                         Individuals
                            Lubricants have historically been a deregulated high margin business in                    and others
                            Pakistan                                                                                       18%
                              Alliance with Castrol for blending and marketing Castrol grades in
H I G H L I G H T S




                              Pakistan                                                                                                                                 GOP *
                              PSO also sells its own brand of lubricants under the brand name DEO,                                                                (Direct and
                              Carient, Blaze 7 and CNG Oil                                                                                                            indirect)
                            LPG business operates 4 storage/bottling plants with a storage capacity                  Institutions                                       54%
                            of over 700 metric tons                                                                       28%
                              Distribution under PAKGAS brand name
                              Sales volumes grew by 34% over last year to achieve the 25 year high
I N V E S T M E N T




                              of 21,000 metric tons

                                                                                                      Source: Privatisation Commission and PSO annual report
                                                                                                      * 51% GOP shareholding offered for strategic sale


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I N V E S T M E N T   O P P O R T U N I T Y :   P AK I S T A N          S T A T E               O I L        C O M P A N Y                         L I M I T E D



                                                                                                                                                                  Agenda




                                                                                         Industry overview
                                                                                                                                       Executive summary


                                                                                                               Investment highlights




                                                                 Financial performance
                                                                                         6


                                                                 9
                                                                                                               3
                                                                                                                                       1
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6
                  Pakistan has registered steady growth in the consumption
                  of POL products
                      Drivers
                      Drivers                                                Comments
                                                                             Comments
                                                                               GDP growth was 6.6% for FY06
                                                                               Manufacturing grew at a rate of 8.6% with agriculture registering growth levels of 2.5% (as at FYE06)
                                    Economic growth
                                    Economic growth                            Cumulative growth for the commodity producing sector was 4.3% for FY06
                                                                               The services sector registered growth of 8.8%

                                                                              Demand for electricity is strong because of improvement and growth in the manufacturing sector
                                           Power sector                       FO consumption levels have been high historically, recent slump in demand occurred due to availability of alternate energy
                                           Power sector
                                                                              sources and abundance of water in dams. Consumption level is on the rise

                                                                              Since 2001-02 the automobile market is growing rapidly by over 40% per annum due to readily available car financing and reduced
                                                                              interest rate
                                      Transport sector
                                      Transport sector                        The automobile sector registered a growth of 29.8% in Jul-Mar FY06
                                                                              All major assemblers are in the process of expansion

                                                                              New OMC licenses have been issued
                      Increased competition                                   Currently 11 players are operating in the oil marketing space. These include PSO, Shell, Caltex, Attock Petroleum Limited (“APL”),
                       Increased competition                                  Total-Parco Pakistan Limited (“TPPL”), Admore Gas Limited, Hascombe Storages Pvt. Ltd., Overseas Oil Trading Co., Askar,
                                                                              Bosicor and Pearl Parco


                      Petroleum consumption CAGR from 1980—2005 (%)
                      Petroleum consumption CAGR from 1980—2005 (%)

                                                                                                                                                                                                                     5.75       6.26
                                                                                                                                                                                                             5.56
                                                                                                                                                                                                  5.01
                                                                                                                                                             4.21          4.28        4.41
                                                                                                                                              3.84
                                                                                                               3.29          3.36
                                                                                                2.21
                                            0.77    0.87             1.17          1.36
O V E RV I E W




                         (0.10)
                                                                                                     Zealand




                                                                                                                                                                                                                     Thailand
                                                                                                                                                           Middle
                                            USA




                                                                                                                                              Bangladesh
                                                           America




                                                                                                               Hong Kong
                                                                     World




                                                                                                                                                                                                                                Singapore
                                                                                   Australia




                                                                                                                                                                                       Malaysia




                                                                                                                                                                                                             India
                                                                                                                                                                                                  Pakistan
                                                                                                                                    Oceania




                                                                                                                                                                           Indonesia
                        Western
                                  Europe




                                                                                                                           Asia &




                                                                                                                                                                    East
                                                   North




                                                                                               New
I N D U S T R Y




                     Source: BP statistical Yearbook 2006




                                                                                                                                                                                                                                            7
                  OMCs poised to benefit from strong growth potential in a
                  deregulated environment
                       Chronology of deregulation in the petroleum sector
                       Chronology of deregulation in the petroleum sector
                                                       Fuel oil imports and price deregulated                                                 Oil and Gas Regulatory Authority Ordinance, 2002
                           July 1, 2000
                           July 1, 2000                                                                            Mar 28, 2002
                                                                                                                   Mar 28, 2002               passed establishing the independent regulator


                                                       LPG prices and allocation deregulated                                                  GOP increased distribution margins from 2% to 3% for
                           Sept, 1 2000
                            Sept, 1 2000                                                                           April 1, 2002
                                                                                                                   April 1, 2002              Mogas, HSD, LDO and SKO


                                                       Deregulation of HSD imports                                                            GOP increased distribution margins from 3% to 3.5% for
                           Jan, 1 2001
                           Jan, 1 2001                                                                             July 1, 2002
                                                                                                                   July 1, 2002               Mogas, HSD, LDO and SKO
                                                                                                                                              PSO increased FO distribution margin from 3% to 3.5%

                                                       Self management of freight pool implemented by oil                                     Further deregulation of HSD – pricing deregulated but
                          Mar 14, 2001
                          Mar 14, 2001                 marketing companies through Oil Companies Advisory          Sept 1, 2002
                                                                                                                    Sept 1, 2002              margin capped at 3.5%
                                                       Committee (“OCAC”)

                                                       Effective July 1, 2001, OCAC indicating POL prices on a                                GOP announced a change in the oil pricing formula
                           July 1, 2001
                           July 1, 2001                fortnightly basis as per GOP prescribed price             March 16, 2006
                                                                                                                 March 16, 2006               resulting in a decline in OMC margins by around 20%
                                                       mechanism

                                                       GOP announced revisions in distribution margins for                                    Mandate for setting fortnightly prices was given to
                          Mar 15, 2002
                          Mar 15, 2002                 Mogas, HSD, LDO and SKO                                     April 1, 2006
                                                                                                                   April 1, 2006              OGRA



                       Per capita consumption of POL (tons per year)
                       Per capita consumption of POL (tons per year)


                                                                                                                                                                         1.37             1.47
O V E RV I E W




                                                                                                                                   0.70                0.82

                                                                                                      0.33         0.41
                                                                    0.25             0.25
                              0.10            0.10

                                                                                                                                   Thailand
                                                                                                       Algeria




                                                                                                                                                                          UK
                                                                     China




                                                                                                                                                                                            Germany
I N D U S T R Y




                                               India




                                                                                                                                                        Malaysia
                                                                                                                   Turkey
                              Pakistan




                                                                                      Indonesia




                      Source: BP statistical Yearbook 2006, World Population Data Sheet - Population Reference Bureau

                                                                                                                                                                                                       8
I N V E S T M E N T   O P P O R T U N I T Y :   P AK I S T A N          S T A T E               O I L        C O M P A N Y                         L I M I T E D



                                                                                                                                                                  Agenda




                                                                                         Industry overview
                                                                                                                                       Executive summary


                                                                                                               Investment highlights




                                                                 Financial performance
                                                                 9
                                                                                         6
                                                                                                               3
                                                                                                                                       1
                                                                                                                                                           Page




9
                        PSO has successfully demonstrated consistent growth in
                        EBITDA and earnings
                            Financial performance―FY06
                            Financial performance―FY06                                                     Consolidated Income statement summary (PKR million)
                                                                                                           Consolidated Income statement summary (PKR million)
                               PSO has set financial landmarks over the last 5 years with earnings                                                                            2006¹
                               more than doubled from PKR 3,188 million to PKR 7,525 million,              Year end 30 June                2004          2005      2006    (US$mm)
                               maximizing shareholders’ value                                              Revenues                    195,130         253,777   352,515      5,875
                               Highlights were:                                                            Growth                        (5.4)%         30.1%     38.9%      38.9%
                                  Total sales—PKR 352,515 million (growth of 39% compared to FY05)         EBITDA                         7,128         10,603    12,956       216
                                  Net income—PKR 7,525 (growth of 33% compared to FY05)
                                                                                                           Margin                          3.7%           4.2%      3.7%      3.7%
                               PSO has substantial leverage capacity to pursue opportunities such as       EBIT                           6,337          9,618    11,874       198
                                 Enhancing its retail network                                              Margin                          3.2%           3.8%      3.4%      3.4%
                                 Backward integration through acquisition of a refinery
                                                                                                           EBT                            6,148          9,248    10,989       183
                                 Improving infrastructure capabilities i.e. pipeline projects
                                                                                                           Margin                          3.2%           3.6%      3.1%      3.1%
                                                                                                                        2
                                                                                                           Net income                     4,212          5,656     7,525       125
                                                                                                           EPS (PKR and U.S. cents)       24.56          32.98     43.87      73.12
                            Superior dividend payout to shareholders (PKR million)
                            Superior dividend payout to shareholders (PKR million)                         Capex                          2,096          1,506      717         12

                                                                      %                                    Net debt                       3,824          3,467     6,459       108
                                                              33
                                                         CAGR                              5,831           Total assets                  42,409         52,308    70,169      1,169
                                                                             4,459                         Shareholders' equity          15,446         17,545    20,813       347
                                                              3,002                                        Debt/equity                    35.2%         30.8%     40.2%      40.2%
                                               2,744
P E R F O R M A N C E




                                1,858                                                                      Dividend payout                71.3%         78.8%     77.5%      77.5%
                                                                                                           ROE                            27.3%         32.2%     36.2%      36.2%
                                                                                                           Interest cover ratio             34.1          25.9      13.0       13.0
                                                                                                       Source: PSO
                                  2002          2003           2004           2005           2006      ¹ Fixed exchange rate applied: PKR/USD = 60.0
                                                                                                       2 Includes extra-ordinary items
                           Source: PSO
F I N A N C I AL




                                                                                                                                                                                      10
                        Historic price volume chart
                            PSO price volume chart since January 2005
                            PSO price volume chart since January 2005

                            Price (PKR)                                                                                    Volume (‘000)
                             500                                                                                                 70,000



                                                                                                                                  60,000
                             450

                                                                                                                                  50,000


                             400
                                                                                                                                  40,000



                                                                                                                                  30,000
                             350


                                                                                                                                  20,000

                             300
P E R F O R M A N C E




                                                                                                                                  10,000



                             250                                                                                                  0
                                 Jan 05         Mar 05   May 05    Aug 05   Oct 05   Jan 06   Mar 06   Jun 06   Aug 06   Nov 06

                            Source: Bloomberg
F I N A N C I AL




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