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June 17, 2008

Philippines turns down Ashmore for Petron stake
The Philippines on Monday rebuffed an offer to sell its 40 percent stake in oil refiner Petron Corp to investment fund Ashmore Group for around $550 million, saying it wanted a higher price.

"We are better off holding to the 40 percent stake," Energy Secretary Angelo Reyes told reporters. "We are not taking advantage of this tender offer."

But with foreign investors less willing to buy assets in the Philippines and other emerging markets given global volatility and a weak world economy, Manila might regret not taking up the Ashmore offer, some analysts said.

"It's hard to sell assets now," said one analyst from a foreign brokerage house who asked for anonymity due to company policy.

"It seems like a good offer to me, and if you compute the amount that they can actually raise, and given that the budget deficit is not going to do well this year, this is like a lucky break for them."

The Philippines is relying partly on asset sales to prop up its finances after it decided to raise spending to support slowing growth this year, postpoing its goal of a balanced budget until 2010.

But Manila wants to hold out for a higher price for Petron, which supplies nearly 40 percent of the Philippines' total fuel needs. If it wants to sell its stake it would do so via public auction, according to the state's privatisation rules.

Ashmore launched a $827-million tender offer last week for the 60 percent of Petron it does not own. Earlier this year, Ashmore agreed to buy Saudi Aramco's 40 percent stake in the Philippines' largest oil refiner for $550 million.

The London-based fund's offer is valued at around 10 times last year's earnings, higher than the current low single-digit price earnings (PE) ratio for the sector but slightly cheaper than the Philippine market's PE of 11.5 times.

Last month, a local business family, the Gokongweis of JG Summit, said they had offered to buy the government's stake in Petron for around $579 million or 6.55 pesos a share.

Reyes said no decision had been made on the Gokongwei offer.

"It's slightly higher but we have to be certain that that is the best offer," he said.

Ashmore's tender values Petron at 6.531 pesos a share, the same price it will pay Saudi Aramco and an 11 percent premium to the stock's value the day before the tender, which runs until July 14, was launched.

"I don't think the government is in a rush to sell Petron," said Laura Dy-Liacco, analyst at ATR-Kim Eng Securities.

"Petron is in transition. They have a new cracker, they just completed their refinery expansion, probably they feel, moving forward, they can get a better price for Petron," she said.

Petron's petrochemical business is expected to take off this year. JG Summit has a subsidiary that operates an integrated polyethylene and polypropylene plant.

On Monday, Petron ended flat at 6.20 pesos a share in a broader market .PSI up 2.58 percent.

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