President Donald Trump yesterday added to the problems of companies large and small with his ham-fisted ban on travel between Europe and the US (he originally said it was trade and travel, but it seems it is only inbound travel from Europe by non-Americans).
That further roiled markets and for Caltex Australia, it was another unwanted burst of volatility that has already undermined its operations and finances.
Despite continuing optimism from brokers, the chances of Caltex Australia being taken over, look more and more remote as falling oil prices and the increased market volatility drives the share price lower.
At the same time, bond and money markets are seeing an enormous crunch as liquidity tightens. The US Federal Reserve has twice this week pumped billions into the US money markets because of a lack of liquidity and the Reserve Bank has lifted the amount of cash banks are able to hold in its Exchange Settlement Accounts.
All this means the chances are looking increasingly remote for a successful bid for Caltex emerging from the mooted $8.8 billion indicative offer from Canadian convenience store giant, Alimentation Couche Tarde. Caltex has given this group due diligence access, but we have yet to see any form offer.
The growing market instability and liquidity crunch triggered by the coronavirus is making the bid look very unlikely.
The stock market is making the same judgement with Caltex shares down another 9.3% yesterday to end at $24.95.The shares are down 24% in the last five trading sessions.
The mooted bid price from the company’s Canadian suitor is $35.25 in cash. The market is saying no way. There is just no support for Caltex shares.
Caltex is in talks with a second interested party, the private UK group, EG Group which bought the Woolies petrol outlets last year for $1.7 billion and launched a tiddler $25 million for the organic fast-food chain Olivers on Wednesday.
But now Caltex is facing more pressures from the falling oil price which has dropped so fast that its hedges are not able to cope, meaning its profit margins have plunged.
The coronavirus has badly damaged airlines, forcing big capacity cuts on the likes of Qantas, Virgin, and Air New Zealand.
So large are the cuts that Caltex yesterday warned that demand for jet fuel in the Australian market is likely to fall even further in “coming weeks” as airlines suspend more flights and passengers cancel their travel plans due to the widening coronavirus pandemic.
Caltex said profits from producing jet fuel are plummeting, with its already battered fuel-refining margins collapsing by nearly 30% in the past month.
“We have been seeing demand reduction of jet fuel of 5-10 percent for the Australian industry,” Caltex said on Thursday.
“Recent reports by airlines, including announcements from Qantas about reduced capacity and services, indicate that demand may drop further in the coming weeks.”
The World Health Organisation yesterday declared the worldwide outbreak of the new coronavirus a pandemic, with more than 118,000 cases in 114 countries and 4291 deaths.
Airlines have cut hundreds of thousands of flights since late January around the world as they struggle to cope with collapsing demand.
Restrictions on flights to China, parts of Asia and Italy have meant some services have stopped completely.
In its statement on Thursday, Caltex said its refining margin had fallen 20% from $US7.34 a barrel in February 2019 to $US5.78 in January 2020, before falling another 28% to as low as $US4.14 last month.
