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Danareksa Equity Snapshot - PGAS 8 Juni 2018
June 08, 2018 09:46

Perusahaan Gas Negara(PGAS)



We visited PGN to discuss about the current acquisition of Pertagas. The progress of the due diligence is still on going and the valuation is expected to be finalized by the end of June. PGN mentioned the possible schemes that might be used to acquire Pertagas. Besides this, PGN has another option which is to acquire Pertagas partially with several funding alternatives. 


Delayed, but progressing. The acquisition is still in progress but behind schedule due to negotiations at the executive level, especially regarding the valuation and other internal issues. However, government has set a deadline to finish the acquisition by the end of June 2018 which before regional election to avoid political risk.


New alternative. PGN initially planned to acquire the entire shares of Pertagas using external funding or assets swap. However, due to limited time (the Lebaran holidays in June) and tough due diligence, PGN is looking at an alternative option: to partially acquire Pertagas. Nonetheless, the portion to be acquired has not been announced. With this option, PGN does not need to hold Extraordinary General Shareholders’ Meeting to acquire Pertagas, since the possible acquiring cost is less than 50% of PGN equity book value which translates to USD 1.6bn, which, therefore, PGN may meet the deadline.


Funding possibilities. PGN has two financing options to complete the deal: issuance of syndicated loans or holding loans. A rights issue at a later date also remains possible. However, the timing of a rights issue is still unknown, most likely after the general election.  A rights issue would require approval from the House of Representatives according to PP 72/2016. Through the rights issue PGN would be expected to repay 43% of the loan used to acquire Pertagas. The other 57% might be converted to shares (owned by Pertamina). Details on whether PGN will use a convertible bond or not are still unavailable.


Partial acquisition looks most likely. We still have concerns on a partial acquisition of Pertagas since there is uncertainty on the equity portion which will not be acquired. Nonetheless, in view of the short period given by the government and because of difficulties in the acquisition process, partial acquisition looks most likely for PGN.


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