BP to Shed PTA Plant to Reliance - Analyst Blog

By Zacks | October 01, 2012 AAA

BP Plc (BP) entered into a deal with India's Reliance Global Holdings Pte. Ltd. to sell its purified terephthalic acid (PTA) production plant in Malaysia. This all-in-cash deal is worth $230 million and is expected to be completed by the end of this year.

The to-be-sold assets comprise BP's 100% equity in BP Chemicals (M) Sdn Bhd (BPCM), in Kuantan, on the east coast of Peninsular Malaysia. However, the British major's acetic acid manufacturing and marketing business in the South-East Asian country is not included in this sale.

With this deal, the whole of BP's existing team at BPCM is expected to get transferred to the new owners under equivalent terms and conditions. This PTA plant holds a good market position in the region. Recron Malaysia - a unit of the Reliance Group - is the largest customer in Malaysia, with Reliance Industries acting as a significant feedstock supplier at Kuantan. Hence, Reliance becomes a natural owner of this plant.

BP holds a track record of leading technology and has important PTA operations worldwide. It has approximately one fifth of the global PTA production capacity. The company contends that it will continue to focus on its PTA business and intends to invest in new technologies in high growth markets like China and OECD (The Organization for Economic Co-operation and Development).

Presently, the company's net PTA capacity is 7.5 million tons per year (MTPA) worldwide and its Zhuhai plant in China will likely add an extra 1.25 MTPA by 2014. With this addition, the largest plant in China - Zhuhai - will become one of the world's largest PTA manufacturing sites.

This sale in Malaysia is integral to BP's efforts to shed its properties to cover the 2010 Deepwater Horizon oil spill cost. These negotiations are in line with its divestment program that sees the British major getting rid of its mature, non-core upstream assets to create a portfolio with strong growth potential operating from a smaller base. The company is set to divest around $38 billion worth of assets by 2013, of which it has already announced disposals of $33 billion.

In recent times, BP has divested a number of non-strategic assets that include Gulf of Mexico (GoM) oil and gas assets to Plains Exploration & Production Co. (PXP) for $5.55 billion as well as its Canadian natural gas liquids business to Houston's Plains All American Pipeline L.P. (PAA) for $1.67 billion. Recently, it has also disposed the Carson refinery in California to Tesoro Corporation (TSO) for $2.25 billion.

BP carries a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. We also maintain our long-term Neutral recommendation on the company.

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