- Deals will bring synergies, expansion and grow retail network in Pakistan
Two Saudi entities Aramco and Wafi have two oil marketing companies operating in Pakistan. Entry of Saudi investors is expected to bring in synergies. Pakistan certainly needs OMCs which have ample storage facilities and extensive distribution net work
Aramco
Saudi Aramco has reportedly acquired a 40% stake in Gas & Oil Pakistan Ltd (GO Petroleum). This is the second major development in Pakistan’s oil marketing space this year — both led by Saudi Arabia — with Wafi Energy earlier entering into a share purchase agreement to buy Shell Pakistan.
Incorporated in 2015, GO Petroleum retails fuels and lubricants, backed by about 1,100 outlets and a storage capacity of 200,000 tons. It is the 2nd largest oil marketing company in Pakistan in terms of retail outlets. However, its market share has fluctuated between 6% to 8%.
Valuation
Pricing details were not declared at that time. However, a Pakistani brokerage house tookbearings from its assessed intrinsic value of US$200 million for SHEL to tentatively price the GO deal. Given GO’s smaller market share in FY21-FY23 market share: 6.9% vs. 7.7% for SHEL), including in the lubricants business, and the lack of a brand value comparable to SHEL, it was believed that t the deal may price GO between US$100 million to US$150 million. A 40% stake at this valuation range translates to US$40 million to US$60 million. It was also believed that Vitol Dubai had a 10% share in GO Petroleum but it was not clear at that point if that was part of the 40% stake being acquired by Aramco. It was likely but not certain that Aramco would take over management rights.
The GO Petroleum deal will be Aramco’s first investment in Pakistan, and comes on the heels of its earlier moves to acquire Valvoline’s global operations and Chile’s Esmax Distribution SpA. That said, the GO Petroleum investment was very small in comparison to these other overseas downstream ventures. This leads analysts to think it may well represent a testing of the waters, with Aramco reportedly also interested in setting up a mega refinery project in Pakistan.
If GO Petroleum expands rapidly it could eat into the existing market shares of competitors. At present, given its major presence on motorways and the North region, GO primarily competes with HASCOL and APL, while urban centers are dominated by PSO and SHEL. A possible expansion into the South region will impact the latter two companies more.
Wafi
Shell Pakistan (SHEL) announced that its parent company, Shell plc has concluded the divestment of SHEL at a price of PKR118/ share, after more than a year of negotiations. The price implied a deal value of US$70 million, for 77.42% of SHEL’s shares held by the parent company.
As per the substantial acquisition rules, the acquirer, Wafi Energy, a Middle East based group, had to make a public offer for acquiring 50% of the minority stake/ free-float (which was 11.29% of SHEL’s outstanding shares) at PKR155.11/ share.
About Wafi Energy LLC
Wafi Energy LLC is a wholly owned subsidiary of Asyad Holding Group, is Saudi Arabia based energy company, which is involved in management and operation of fuel stations. Before entering into Pakistan, the company had already collaborated with Shell Brands International AG (Shell) to distribute Shell’s brand at their fuel stations.
Wafi had expressed to completely acquiring Shell plc’s stake in SHEL (77.42%) through a share purchase agreement. The deal has been negotiated at a price of PKR118/ share. Wafi is the second Middle East based company to enter into Pakistan’s downstream oil sector after Aramco’s acquisition of GO Petroleum. This shows the region’s increasing interest in Pakistani market
The public offer was based on SECP Rules of substantial acquisition, where the acquirer has to make a public offer to 50% minority shareholders while the price was to be determined based on SECP guidelines.
After the announcement SHEL touched an intraday low of PKR139/ share before closing at PKR147/ share as market took this negatively, because the market was expecting a much higher public offer price than PKR155/ share (close to PKR200/ share).
As per the notice, the offer price of PKR155.11/ share was determined based on the weighted average price during 28 days preceding the date of public announcement of intention while the weighted average price during 180 days preceding the announcement of intention was PKR149.49/ share. Hence the applicable price was PKR155.11/ share.
While the company would continue to be listed, if some shareholders want to surrender their share, they can do so at the offer price. The surrender window remained open from 13 to 19 September 2024.
While the public offer price was termed lower than market expectations, analysts believed the deal would be beneficial for the remaining shareholders in a long term as Wafi has plans to further grow its footprint in Pakistan by expanding its retail network to capture a larger market share that SHEL currently has, around 10%. The deal was expected lead to cost synergies as Wafi is a Saudi based company and Pakistan relies heavily on Saudi Arabia for its oil import.