Tuesday, June 10, 2014

Putting The Phoenix Park Gas Processors Limited IPO In Perspective

Once again given the limited investment options caused by onerous, unnecessary securities regulations and the excessive liquidity in the T&T economy caused by Central Bank monetary expansion (legalized counterfeiting) everyone is clamouring for the upcoming PPGPL Initial public offering (IPO).

Although the business model appears sound buyers should be cognisant of the potential downside risks that are not being mentioned. Prudent investors would be wise to note the following: 

1. ConocoPhillips would not have disposed of a top performing asset to begin with inspite of the rationale provided for the disposal. Often times when the going gets tough energy majors bamboozle clueless governments like the T&T government to overpay for assets that they deem to have outlived their usefulness.

2. Petrochemical plants and infrastructure are normally amortized over 20 - 25 years which is consistent with their normal useful life. Coincidentally PPGPL is 25 years old; granted they would have been doing on going upgrades / maintenance, however PPGPL's infrastructure may likely need major turnarounds / maintenance soon. 

3. The Phoenix Park business model is based on processing natural gas throughput therefore they are dependent on downstream gas utilization and transmittal which within the last two years have been declining and inconsistent due to the gas curtailments emanating from offshore platforms. There remains complaints by the upstreamers that T&T is no longer a cheap gas location and the economics of extracting gas and selling gas to the NGC is not as attractive as it used to be.

4. Major natural gas utilizing projects that were on the cards namely the Ammonia Urea Melamine (AUM) II and the SINOPEC / SABIC Methanol to Olefins projects have been shelved due to lack of reliable and economical gas supply. Meanwhile other gas renewal contract negotiations remained strained as natural gas consumers believe NGC is not offering favourable enough terms.
5. There is a very high probability that when the IPO is launched it will be another feeding frenzy by the brokers, insiders and the politically connected similar to FCB debacle; as clearly no one was or will be prosecuted for the fraudulent execution of the last IPO.

6. Trading liquidity may be limited as the majority of the shares being offered are to institutional investors, pension funds, mutual funds who typically buy and hold. Consequently only a small number of shares may regularly change hands therefore selling shares on demand may not be readily available.

All that being said on its face PPGPL appears to be a good short term investment if you can get in and get out at the right time, however getting out exactly at the right time is never an easy feat especially when "information asymmetry" is very much present (i.e. the insiders would know when to get out before the average investor would). 

Investors are encouraged to read the prospectus carefully and to thoroughly understand associated risks. Investors would be wise to note that past performance does not guarantee future results. 

Investing some money might be an OK move but levering up and/or investing your life savings might not be prudent.

Your comments are welcomed...

9 comments:

  1. Very useful info. thank you!

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  2. Great article....but my question to you is how long do you think Phoenix Park will be a god company to own?

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    1. oops I meant "good" not "god". How long do you think one should hold the shares short term? 1-3 yrs?

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    2. 3 to 6 months

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    1. Short term can be 1 year to 5+ years depending on how well the company performs etc.. However, as the time gets closer and as the article above mentioned there will be insiders who know exactly when to get out. Leaked information could cause panic and could lead to many people trying to sell their investments all at once causing a bottleneck in your escape plan.

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  4. Is All Well At PPGPL?

    Since the official start up of PPGPL in June 1991 the company has established itself as a best in class business excelling in industrial safety and financial performance. One of the factors amongst others that has led to its success is a highly motivated and aligned workforce. Successive leadership over the last 23 years has stressed one of the organization's core values of " Valuing All People" which has been key in creating that highly motivated and aligned workforce. Events of late suggest that that core value which has been key to the organization's health is seemingly under threat from actions of the Board.



    In November of 2014 the Board suspended (with pay)three senior officers including the VP for Corporate Services pending an investigation into a matter related to the purchase of goods and services and deviation from policy. That investigation started in May of 2014. So far that seems normal under typical organizational procedures notwithstanding that 5 months seems quite long. It is understood that at the direction of the Chairman of the Audit Committee the report that led to the suspensions was revised many times to give it the necessary weight and tone to convince the Board to support the action. Perhaps one could question the motives of the Audit Committee Chairman and whether there was a concerted effort to work to a particular end however that would be speculative without hard evidence. The matter however takes a turn further along the slippery slope when it engages an external " Independent Panel" led by a former industrial court judge whose findings were systemic failures and no evidence of unethical conduct by the three suspended officers. The report was completed in mid - December 2014 and the company has on successive occasions set and cancelled review meetings with the suspended candidates to advise them on the outcome and their fate. The latest development is a disciplinary hearing in late February with a Panel comprising of one person who is a prominent attorney. Who knows what twist and turn will happen next and one can't exclude the rejection of the report of the ' Independent Panel' .



    This process seems very different from what is customary and normal for matters such as this. Many questions arise including whether this process is simply a pretext for the removal of three officers that weren't favored by members of management and the Board. Perhaps this is normal and customary practice for State companies but what is clear is that it is going to be a severe test for the company's core value - Valuing All People. A core value that has been the bedrock on which the company was built. Time will tell whether the PPGPL under the new governance and changed culture will be able to retain the calibre of employees that have served it with distinction and loyalty over the last 23 years.

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  5. totally agree it is not a long term share purchase and need to have the right timing to get out

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  6. Now that the prospectus is out, what are your views? Revenue and profit have seen deterioration year after year for the past 4-5 years.

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