Trafigura-Backed Puma Energy Hammered by Angola Fuel Freeze

LAUNDA (Capital Markets in Africa) – A $5.7 billion spending spree is catching up with Puma Energy Holdings Ltd.

The fuel station operator, whose biggest shareholder is commodities trader Trafigura Group Pte. Ltd, is struggling to increase profits after Angola’s new president froze pump prices this year, slashing Puma’s traditionally lucrative margins in the African country.

The troubles in Angola are highlighting Puma’s weighty debt burden, incurred as it forked-out between 2012 and 2016 to buy and build fuel stations, terminals and storage facilities from Australia to Myanmar and Argentina to Zimbabwe.

Fitch Ratings Ltd said this month it had lowered its outlook on Puma Energy to “negative“ from “stable” as troubles in Angola combined with stiff competition in Australia dent its pretax earnings growth. Compounding the company’s problems, the raft of deals and building projects — including buying existing fuel stations — conducted in recent years still haven’t paid off.

“These investments have yet to contribute materially to Ebitda, and the under-performance in Angola has reset the group’s Ebitda to pre-expansion levels,” Fitch analysts, including deputy head of natural resources and commodities Myriam Affri, wrote in a Sept. 7 statement announcing the outlook revision.

A Puma Energy spokeswoman declined to comment.

The outlook revision marks a significant setback for Singapore-based Puma, which Trafigura had previously touted as a potential candidate for an initial public offering.

The focus is now on cutting costs, potentially selling non-core assets and reducing debt. The company said in June that Chief Executive Officer, Pierre Eladari intends to step down once a replacement is found.

Since President Joao Lourenco, came to power in 2017, Africa’s second-biggest oil producer froze domestic fuel prices and devalued its currency, the kwanza, in a bid to end crippling shortages of foreign exchange.

In addition to Trafigura, Puma’s other shareholders include a subsidiary of state-run oil company Sonangol, with a stake of about 30 percent. Isabel Dos Santos, the billionaire and daughter of former Angolan president Jose Eduardo Dos Santos was removed as chairwoman of Sonangol in 2017 after Lourenco came to power.

Cochan Holdings LLC, an Angolan investment firm, owns about 15 percent of Puma. The share capital of Cochan is “ultimately owned” by Puma director Leopoldino Fragoso do Nascimento, according to a company filing. He is described as an entrepreneur in Puma’s annual report, previously served in the Angolan army and was promoted to General in 1989.

In its base case scenario, Fitch expects Puma to report 2018 Ebitda of $571 million. That’s down from $740 million in 2017.

The ratings company says Angola is primarily responsible for the drop in pretax earnings. Puma has historically enjoyed unit margins in Angola of about $200 per cubic meter of fuel sold, which have now fallen to a still “healthy” $120 to $130 per cubic meter. Puma’s average overall downstream unit margins will be about $52 a cubic meter from 2018 to 2021, “with no recovery in Africa and Asia in 2018 and 2019,” Fitch said in the statement.

Fitch has assigned Puma Energy a credit rating of “BB” which means the debt is “speculative,” according to its rating scale.

Source: Bloomberg Business News