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Fijian Holdings Ltd has defended its purchase of BP South West Pacific Ltd (BPSWPL) despite the cost of investment at almost 70 per cent the value of its total assets.
FHL chief executive officer Sereana Qoro today disclosed that the buyout may be delayed yet again.
In a briefing with stockbrokers this morning, Qoro was asked her comments on some concerns raised by shareholders that the roughly $200 million purchase against its total asset of some $300 million may mean that it was putting too much emphasis on one company when it ought to be diversifying its investment portfolio.
Qoro defended the decision saying it was geared towards directly increasing shareholders wealth and, in the long run, should push up dividend returns from FHL.
“You can’t go wrong with oil. Oil is like gold, cash. You cannot go to the service station and say, please can I fill my car and I pay you next week.
“The pricing template in Fiji guarantees margins and so it’s a guaranteed margin. The Prices and Incomes Board has a clear cut formula so margins are protected and cash, everyone in business knows, cash is king,” Qoro said.
“Cash flow in oil is huge. The credit terms with oil companies is not more than 21 days. The other companies, you have to chase after your money, 60 days, 90 days then you get paid. With oil, you don’t chase after the money, the money comes to you. That’s the unique thing about this investment. It is for shareholders.”
The purchase by FHL of BPSWPL’s Pacific operation was first announced late last year but the completion of the purchase process has since been met with a number of delays, which Qoro said was related to the volumes of paperwork associated with the transaction.
And there was no guarantee, she said, that the process will be completed by the end of this month, as the company had announced earlier.
“The acquisition as we have announced over the last four months is definitely going ahead. The process has taken longer than expected but we are determined to get there and we will. We’re still talking to our financiers.
“There’s a lot of paperwork to be done. It is a very significant transaction, it is one of the biggest in the country, I understand and it’s important for me to say at this stage that the bid or the acquisition and the purchase of BPSWPL by Fijian Holdings is definitely going ahead.”
FHL is talking to a number of banks in India, where Qoro said the cost of credit has been reasonable despite the global financial crisis, as the Indian financial system faced no liquidity problems.
She also confirmed that FHL’s management contract with an Indian company to manage the oil business was intact.
FHL is listed on the South Pacific Stock Exchange and last traded at $2.82 per share.
