Petroperú mulls IPO

Peru’s government clears a path for USD 1 billion public offering of Petroperú shares but will investors bite?

The Government of Peru issued a decree last 25 October which exceptionally authorised the injection of USD 1.01 billion into Petroperú, the state-owned oil company through a public offering of shares. Álex Contreras, Deputy Minister of Economy, said that the company would be subject to a deep restructuring process after experiencing problems with creditors and suppliers’ due to liquidity issues.

Peruvian investment analysts have warned about the risks of investing in Petroperú, with its record of poor management, labour capital imbalances, and issues with the USD 5.29 billion Talara refinery project in Piura, which is not yet fully functional and will need substantial further investment to rectify. Over-indebtedness caused by the modernisation of the Talara refinery has left the business in a financial hole.

An energy industry executive in Peru struggled to believe there would be much institutional demand for the IPO, “The question is: who would be interested in investing in Petroperú, knowing the history of oil companies in Latin America and all the company’s operational problems. Any investor would have to be someone with geopolitical rather than economic interests such as a Middle Eastern sovereign wealth fund or the Chinese.”

“The question is: who would be interested in investing in Petroperú, knowing the history of oil companies in Latin America and all the company’s operational problems.”

Executive, energy industry, Peru

Amid the doubts caused by Petroperú’s future economic efficiency, Kurt Bueno, Minister of Economy of Peru, appeared before the budget and general account commission of the Congress to warn about the danger of letting Petroperú go bankrupt. Bueno said that, with the company supplying 50% of the local fuel market, the collapse of the company would result in soaring inflation, rising costs for SMEs, and, potentially, the country sliding into recession.

An institutional fund manager in Peru ruled himself out of the IPO, “Petroperú is a political football and the government will continue to manage its prices and operations as they wish to achieve their political objectives. Selling a minority shareholding will not change this so the political exposure risk is too high for us.”

“Petroperú is a political football and the government will continue to manage its prices and operations as they wish to achieve their political objectives.”

Institutional fund manager, Peru

Both the clear support from the government and corporate restructuring plans, which included the resignation of Petroperú’s president Humberto Campodónico, have led S&P Global Ratings to improve its outlook from “credit watch with negative implications” to “stable”.

Nevertheless, to regain confidence from international investors Petroperú’s needs to improve its financial transparency, reform its corporate governance structure and demonstrate that its return to the upstream business is viable by starting operations at new blocks such as Block 64. The latter will not be straightforward, Block 64 is in the Peruvian Amazon and faces community opposition and a need for private sector financing and partnerships.

Amazon Watch is also on the case, publishing a report in September of this year that detailed the political, social, financial, environmental and legal risks faced by Petroperú and calling out relevant banks and asset managers.

It’s a tough sell!

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