Fuel refiner and retailer Viva Energy has kicked off its long-awaited $5.15 billion sharemarket float, expected to be the largest IPO on the ASX since 2014, but a large part of its shares is likely to remain in its current owner’s hands.

The Dutch-owned company said its shares will be listed at between $2.50 and $2.65 apiece, bringing its total market value to between $4.86 billion and $5.15 billion. Viva’s parent company, UK-based energy group Vitol, is expected to keep between 777.8 million and 972.3 million shares, or around 40 per cent of the newly listed entity, valued at between $2 billion and $2.5 billion.

Viva Energy is being spun out of Vitol, which originally bought the assets – including an oil refinery, three oil import terminals and petrol stations across Australia – from Shell in 2014.

The Dutch company will remain its most significant investor, said Viva Energy chief executive Scott Wyatt, declining to name other major shareholders, or how much of the share sale would be offered to institutional investors such as investment funds.

According to the share sale documents accompanying the offer, the British company has retained an option to cash out its 40 per cent holding at any time.

A chance to cash out

Mr Wyatt said Vitol was floating the Australian business in order to reward some long-term investors in the group.

“We’ve brought it to market now to make a return on investment that our shareholders have made over the years,” said Mr Wyatt, who will receive 5 million Viva shares valued at up to about $13.8 million, as part of the offer. He will be required to hold on to half of his shareholding for 12 months after the IPO, and keep the remainder for at least another year.

Viva’s chairman Robert Hill will also receive $100,000 of shares through the IPO.

The indicative IPO price is in the middle of the range of the share sale managers’ estimates, which placed the company’s value at between $4.3 billion and $6.2 billion based on a multiple of its operating profits last year.

Viva currently owns 1165 petrol stations across Australia, including around 1000 under the Shell brand. Of these, 713 are operated as Coles Express. It also operates Liberty Oil petrol stations – a brand that is half-owned by Viva.

Mr Wyatt said the relationship with Shell will remain in place until at least 2024, when the option for renewal arises, and the petrol stations will stay branded as either Shell or Liberty. The relationship with Coles will continue until 2024, when there is the option for renewal.

Risks and rewards

In its share sale document, Viva said one of its key potential risks for prospective investors was the ongoing strength of these partnerships. Oil price volatility was also a risk.

The group also noted the threat of electric vehicles and hydrogen fuel reducing demand for traditional fuel products – a risk also noted by Viva rival Caltex.

However, Mr Wyatt maintains there would still be continued demand for traditional fuels.

“People talk about electric vehicles, and we have seen some impact, but they are less than one per cent of Australia’s vehicle fleet. Internal combustion engine vehicles are still being sold and there is still an emphasis on traditional vehicles,” he said.

“Petrol is only 25 per cent of what we sell, the remaining 75 per cent is diesel sold for heavy vehicles, into the marine sector, and aviation fuel, so we’re less likely to be impacted. We feel we’re well positioned to grow.”

Viva also operates a refinery in Geelong, Victoria; one import terminal and one storage facility in NSW; and one oil import terminal in Victoria. The refinery at Geelong – which Viva says is the second-biggest in Australia producing 10 per cent of the nation’s fuel and half of Victoria’s – was identified as being vital to Viva’s profits, with any material interruptions likely to force the company to source refined fuel from other refineries.

Viva also holds a 38 per cent share of the ASX-listed Viva Energy real estate investment trust, which acts as the landlord for much of Viva’s holdings.

There will be no change in leadership as the company goes public. Scott Wyatt – who previously was the Australian vice president of Shell’s downstream business – will remain chief executive officer, with former federal Environment Minister and Minister for Defence Robert Hill acting as chairman, a position he has held since 2014. Jevan Bouzo will act as CFO for Viva, combining the role with his director’s position at Liberty Oil.

Mr Hill said the company’s board remains confident in its executives, which had overseen “material growth in Viva Energy’s pro-forma EBITDA from $535 million in 2015 to $635 million in 2017”.

The share offer has been led by Merrill Lynch, Deutsche Bank and UBS. Gilbert and Tobin have acted as legal advisor.

Viva’s shares are expected to begin trading on the ASX by 20 July

Extracted from SMH