Pilipinas Shell raises P17.9 B from rights issue of shares

MANILA, Philippines - Pilipinas Shell Petroleum Corp., the local unit of Royal Dutch Shell, has raised P17.9 billion from a rights issue of shares, effectively boosting its capital as it lays the groundwork for its long overdue initial public offering (IPO).

Market sources told The Star the company is looking at proceeding with the listing either in the first or third quarter of 2016 or before or after the May elections to avoid poll-related uncertainties. The firm is already in talks with foreign banks to handle the IPO.

“In June 2015, the company received P17.9 billion for future stock subscription from a rights issue,” Shell said in a document submitted to the Securities and Exchange Commission (SEC).

In a rights issue, a company sells new shares to existing shareholders in proportion to their current shareholding, usually at a discounted price as a sweetener to investors to buy the new share. On the other hand, if they do not buy, the value of their existing stake is diluted.

Shell also saw a marked turnaround in its operations this year, posting a net income of P3.6 billion in the first half from a net loss of P500 million in the same period last year as gross refining margin rose to P10.5 billion in the second quarter compared to P3.6 billion in the same period last year, company documents showed.

Likewise, its operation expenses decreased to P4.2 billion in the second quarter from P4.6 billion a year ago primarily due to the decrease in overhead charges.

Due to the strong financial performance of the company, Shell’s gearing ratio — the proportion of a company’s borrowed funds to its equity — improved to 71 percent as of the second quarter of 2015 from 92 percent as of December 2014.

With the higher capital and improved financial position, Shell has now cleared all the roadblocks for its IPO, which has been overdue for more than a decade now.

The Oil Deregulation Act of 1998 mandates oil companies including Shell to list at least 10 percent of their common stock within a period of three years since the effectivity of the law.

But Shell has put off this mandatory requirement for 17 years since the passage of the law through at least three administrations – Ramos, Estrada and Arroyo – as it was waiting for its parent firm’s decision on whether or not it would upgrade its refinery in Tabangao, Batangas.

In 2014, the company finally announced that it has decided to upgrade its 110,000 barrel-per-day refinery to meet Euro IV requirements.

This year, Shell has set aside P3.5 billion in capital expenditures, the bulk of which would be used to upgrade the Batangas refinery.

“For the year 2015, a budget of P3.5 billion has been approved for capital expenditures. Bulk of the capital expenditures has been allocated mainly for two major projects which are the new import facility in North Mindanao and the refinery upgrade to comply with Euro IV requirements,” documents from the company also showed.