Why Not List Trillion Ringgit Petronas

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Listing the national oil corporation Petroleum Nasional Bhd or Petronas is not the wild idea that it sounds like. It is very feasible and can be done in a manner which will benefit the oil firm and the country tremendously, bringing depth and value into the market too.
It has been done before - Saudi Arabia listed its wholly owned oil company, the world’s largest oil producer Saudi Aramco, in 2019, on its Tadawul exchange, by selling just 1.5 percent to investors and raising US$25.6 billion (RM113 billion at current exchange rates).
Its current market value is about US$1.8 trillion or RM8 trillion, among the most valuable companies in the world and its most profitable by far. Our initial calculations show Petronas could be valued at over RM1 trillion (US$226 billion) and will account for a third of Malaysia’s expanded market capitalisation if it is listed.
Potential listing benefits are huge - it could raise funds of around RM50 billion for floating just five percent. Because it is a huge company, it will provide considerable depth and width to the local stock market and boost market liquidity.
Also, it may be the needed catalyst for the long-discussed and long-delayed sovereign wealth fund using our oil and gas wealth to preserve the gains for future generations of Malaysians, by providing the seed capital for its formation.
In the midst of concerns about disclosure (see my recent column), its listed status will ensure public scrutiny and timely disclosure of all relevant information to an investing public.
Petronas is the only Fortune 500 Malaysian company, ranked 167 in terms of revenue. Let’s work out some ballpark valuation figures for Petronas based purely on net after-tax earnings. This would mean estimating value at a multiple of current earnings.
It is much more complicated than that in practice and a whole host of factors need to be taken into account and discounted cash flow analysis used. Also, future projected earnings are better.
But for a ballpark figure, earnings are a useful and simple way to calculate the value as a multiple of yearly earnings, using similar examples elsewhere.
Petronas is the only Fortune 500 Malaysian company, ranked 167 in terms of revenue. In 2023, it made a net profit of RM80.7 billion, a fifth down from 2022’s RM101.6 billion. In the first half of last year, it made RM32.4 billion, down a fourth from the previous half’s figure of RM40.2 billion.
For Petronas, Saudi Aramco, also a national oil company, offers a good model for listing. The table below shows how Petronas’ market value comes to RM1.09 trillion, which is about half of Malaysia’s stock market value of RM2 trillion, under one scenario.
Petronas has become a giant company, even by world ranking among listed entities coming in somewhere in the top 50 in terms of market value (listed companies), and among the top 75 in terms of earnings, no mean feat. It will be the top Asean company in those terms.
Small float
What percentage of Petronas will the government give up? In Saudi Aramco’s listing in 2019, only on the Saudi exchange Tadawul, the kingdom sold just 1.5 percent of shares for US$25.6 billion (RM113 billion at current exchange rates). It involved three billion shares, valuing it at about US$8.53 each.
For Petronas, it could float five percent. With a valuation of RM1 trillion, that would mean an RM50 billion value. As with Saudi Aramco, it could restrict listing to just the local market, ensuring all benefits flow to Malaysia itself in terms of liquidity and trading dues.
The small float is not a problem - the regulators will exempt spread requirements because of the size of the issue. But RM50 billion is a lot of money and local appetite for such a large issue is likely to be limited which means opening up to foreign investors.
But priority should be given to locals, both institutional funds and retail investors. These are minor details to be easily worked out for the maximum benefit of the nation. Please don’t fritter even this away by giving benefits to cronies.
The 50-billion-ringgit question is what will the government do with the proceeds? All the net proceeds should go as seed capital to the setting up of the oil and gas sovereign wealth fund, squelching any suspicion of abuse of the proceeds.
This fund should be firewalled by adequate provisions in the law to prevent it from being looted or used in any way for political purposes and staffed by those with the best ability and people known for their honesty and integrity at the same time.
If this is all done, on the broad outlines I have given, what is there not to like about listing Petronas? - Mkini
P GUNASEGARAM has written and spoken a few times before about the feasibility and benefits of listing Petronas. The listing is indeed desirable, the only question being that of timing.
The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.

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