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The Cakaudrove Provincial Council has joined hands with two other provincial councils in expressing its concern on the Fijian Holdings Limited’s (FHL) proposed $190 million acquisition of BP South-West Pacific Ltd (BP SWP).
This month, the Nadroga and Rewa Provincial Councils expressed concerns, as Class B shareholders, over the proposed acquisition saying this was too huge a deal for FHL’s size.
And yesterday, Tui Cakau Ratu Naiqama Lalabalavu voiced similar sentiments saying the size of the deal was too huge and could not be adequately supported by the FHL balance sheet as at June 30 last year.
He said the risk would be extremely high.
“What confuses us is that oil is a non-renewable resource and some oil companies in the world are now shying away from direct retailing where margins continue to be eroded, hence a continued reduction in the return on investment on the retailing end of the business,” Ratu Naiqama said.
He said another subject of concern was that the price of oil in Fiji was regulated by the Prices and Incomes Board (PIB), “which means that revenue for any oil company in Fiji is driven by volume through established marketing channels”.
“Global price of oil per barrel when the deal was struck was at its peak at around US$147. Now, it is below US$40 per barrel. This has a serious impact on revenue generation, which has a direct impact on the value of BP Oil business in Fiji,” Ratu Naiqama said.
“We believe the price offered by FHL, from our estimation, includes a premium of around $80 million. This is again extremely high, which renders the valuation conducted by FHL advisers questionable,” he said.
Ratu Naiqama added the wrong timing of the deal given that the current liquidity position in Fiji was tightening and that interest rates were moving upwards.
“If funds are borrowed offshore, what strategy will FHL adopt to mitigate the exchange risk? FHL moved too early without locking a financier to fund the deal.”
He urged FHL to explain to shareholders the full content of the deal. Cakaudrove Provincial Council holds 10 million B-Class shares, and also holds a lion share of FHL A-Class shares totalling 400,000.
It is also understood that Namosi chief Ratu Suliano Matanitobua has also requested for the presence of FHL directors at its provincial meeting to explain this proposed acquisition.
Meanwhile, responding to queries by the Rewa Provincial Council, FHL managing director Sereana Qoro said shareholders were welcome to raise their concerns and have these officially addressed by FHL directors at the proper forum, being its annual general meeting.
“The Rewa Provincial Council can be rest assured that the FHL Board made the decision to acquire, only after a proper and thorough due diligence process, which included the necessary legal, technical and financial analysis of the 60-year-old well established and highly profitable oil business,” Qoro said in the letter.
