South Korean refiner Hyundai Oilbank plans IPO in 2022 on recovery in domestic fuel demand and plentiful cash flow

Strong points

Second IPO attempt after the failed takeover bid in 2018

Resumption of domestic fuel demand, improvement of middle distillate cracks

Low interest rates, accommodating monetary policy to support investor confidence

South Korean oil refiner Hyundai Oilbank plans to list its shares on the country’s main stock exchange next year as the fuel producer aims to take full advantage of the optimistic outlook for the country’s recovery in oil demand and strong refining margins, while favorable capital market conditions amid low interest rates bode well for fundraising.

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Hyundai Oilbank board members have approved a plan to promote an initial public offering, or IPO, sometime in 2022, a company official told S&P Global Platts.

Hyundai Oilbank is 74.13% owned by Hyundai Heavy Industries Holdings, which runs South Korea’s largest shipbuilder, Hyundai Heavy Industries, while Saudi Aramco has a 17% stake as the second largest shareholder.

Hyundai Heavy Industries Holdings said its board of directors also approved the refining subsidiary’s IPO plan.

This is Hyundai Oilbank’s second attempt to list on the South Korean Stock Exchange after the refiner abandoned its first IPO offer in late 2018 following a deal struck by Hyundai Heavy Industries for sell a 17% stake in Hyundai Oilbank to Saudi Aramco in January 2019 for $ 1.24 billion.

Recovery in demand, dynamic sales, margins

The refiner’s IPO plan comes at a strategically appropriate time as South Korea’s domestic and industrial fuel demand is poised to experience a steady recovery from lows seen in 2020 due to the coronavirus outbreak, industry and market players said.

“South Korea is likely to be among the first group of countries to emerge from the pandemic thanks to the rapid pace of the country’s immunization progress … subsequently, domestic demand for petroleum products has started to increase in recent months,” improving the fuel sales outlook, which would be very positive for investor sentiment, ”said a marketing source at Hyundai Oilbank.

Between January and April, South Korea’s consumption of petroleum products increased 1.4 percent year-on-year to 297.291 million barrels, according to the latest data from the Korea National Oil Corp.

Consumer demand for transportation fuels in particular is likely to continue to improve in line with increasing population mobility as the nationwide vaccination program accelerates, refinery officials said and market analysts.

According to Platts Analytics, the country is expected to consume 872,000 bpd of gasoline, diesel and jet fuel combined in 2021, up from 837,000 bpd in 2020.

Hyundai Oilbank reported operating profit of 412.8 billion won ($ 369 million) in the first quarter, recovering from an operating loss of 563.2 billion won in the same one-year period earlier and an operating loss of 78.6 billion won in the fourth quarter of 2020. Its first quarter sales increased by 2.7. % year on year at W4.54 trillion.

The strong upward trend in middle distillate crack spreads in Asia would continue to support domestic product sales and the refiner’s export revenues, while jet fuel margins could eventually recover as international flights are expected to thrive. at the end of the pandemic, the company official and marketing source said.

Singapore gasoline RON 92 crack spread over first month ICE Brent crude futures has averaged $ 5.31 / bbl so far in first half, a marked improvement compared to the $ 2.47 / bbl on average in the second half of 2020 and $ 1 / bbl in the first half of last year, according to data from Platts.

High liquidity in financial markets

Hyundai Oilbank’s IPO offer was also largely driven by favorable capital market conditions, as abundant liquidity in the financial market amid record interest rates, in addition to prospects for economic recovery. country, will likely stimulate the appetite of investors, the company manager and the fixed income market. according to analysts in Seoul.

The Bank of Korea has kept its benchmark interest rate at a record high of 0.5% since May 2020. The central bank’s aggressive monetary easing policy continues to keep cash flows flourishing in the financial system, the indicator M2 money supply increasing by 50.6 trillion won ($ 45 billion) from March to reach 3,363.7 trillion won ($ 3 trillion), the highest monthly growth in more than 12 years, according to the latest data from the BOK.

The M2 is used to assess cash flows in short-term funds that could easily be converted to cash.

With CPI inflation about to accelerate, central banks in the world’s major economies have started to think about the timing of interest rate hikes. Nonetheless, accommodative monetary policy is to remain for some time and abundant liquidity will continue to play in favor of IPOs and the broader stock market, analysts at Kyobo Securities and SK Securities in Seoul said.

South Korea’s benchmark KOSPI stock index closed at a record 3,278.68 points on June 16.

On May 27, the BOK raised the country’s economic growth forecast for 2021 to 4%, against a growth projection of 3% made in February.


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