Formosa Chemicals & Fibre Corp (台灣化纖) on Friday said it plans to sell a maximum of 51.6 million shares of affiliate Formosa Petrochemical Corp (台塑石化) by the end of the second quarter next year.
The announcement, made by the supplier of aromatics and styrenics in a filing to the Taiwan Stock Exchange, makes it the first unit under the nation’s biggest diversified industrial group, Formosa Plastics Group (FPG, 台塑集團), to say it is planning to sell Formosa Petrochemical shares.
Yuanta Securities Corp (元大證券) analyst Yvonne Tsai (蔡昀真) said two other FPG affiliates — Formosa Plastics Corp (台塑) and Nan Ya Plastics Corp (南亞塑膠) — are likely to follow suit and announce the sale of similar stakes in Formosa Petrochemical, the nation’s only listed oil refiner.
Tsai said in a client note on Friday that the announcement is part of Formosa Chemicals’ original plan to sell 190.52 million shares, or about 2 percent, of its stake in Formosa Petrochemical this year, but the company, along with the two other affiliates, scrapped that plan in late June because of Formosa Petrochemical’s declining stock price.
The latest announcement cuts the scale of the sale to 51.6 million shares, or 0.54 percent of Formosa Chemicals’ stake in Formosa Petrochemical, Tsai said.
In its stock exchange filing, Formosa Chemicals said the company plans to use the proceeds to strengthen its working capital.
FPG may use part of the proceeds to fund its several overseas expansion projects, including a steel mill in the Vung Ang Economic Zone in Vietnam, the Chinese-language Economic Daily News reported on Saturday.
Formosa Chemicals did not specify any details of the planned sale, but said that Chang Gung Medical Foundation (長庚醫療), one of FPG’s nonprofit organizations and its investment arm, would buy 17.2 million shares, or a third of the shares to be sold.
“Some specific, undisclosed buyers will buy the remaining shares in block trades,” Tsai said. “The disposal itself should be neutral to Formosa Petrochemical [shares] as it will be conducted through block trades with specific buyers. However, Chang Gung’s purchase echoes our view of a positive petrochemical outlook.”
Tsai said Formosa Petrochemical is forecast to benefit from a recovering naphtha cracker spread — the price gap between crude oil and petroleum products extracted from it — over the next two years thanks to limited ethylene capacity additions around the world, boosting the firm’s earnings and cash flow.
Earlier this month, Formosa Petrochemical president Tsao Mihn (曹明) said he was optimistic about next quarter in view of higher demand for ethylene, propylene and butadiene in China, while oil supply demand in Africa, the Middle East and Indonesia remains strong.
Formosa Plastics, Formosa Chemicals and Nan Ya Plastics are the three largest shareholders in Formosa Petrochemical. Based on Formosa Petrochemical stock’s closing price of NT$79.8 on Friday, the three are expected to raise up to NT$12.35 billion if they sell 154.8 million shares in Formosa Petrochemical.
If completed, the share disposals would contribute earnings per share for Formosa Chemicals, Formosa Plastics and Nan Ya Plastics of about NT$0.5, NT$0.47 and NT$0.38 respectively, Yuanta forecast.
On Friday, Formosa Chemicals shares fell 1.88 percent to NT$83.4. They have risen 11.2 percent since the beginning of the year.
Additional reporting by Camaron Kao