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tate-owned oil and gas company Pertamina'€™s plan to acquire publicly listed gas distribution company PT Perusahaan Gas Negara (PGN) could cast a shadow on PGN'€™s price performance on the bourse, as investors fear the acquisition plan will have negative implications for the firm'€™s future financial performance, analysts say.

PT Investa Saran Mandiri analyst Kiswoyo Adi Joe said investors feared that the merger of Pertamina'€™s gas unit PT Pertamina Gas (Pertagas) with PGN, as part of the proposed acquisition, would affect PGN'€™s independence.

'€œAt present, it would not be difficult for PGN to raise bank loans to support expansion plans. However, once it is acquired by Pertamina, lenders may think twice before approving a loan request,'€ he said.

State-Owned Enterprises Minister Dahlan Iskan said the government viewed the acquisition as important to guarantee efficient gas distribution in the country and to support the government'€™s plan to increase household-gas pipelines.

A number of acquisition scenarios are currently being assessed by investment companies PT Bahana and PT Danareksa. One of the scenarios would allow Pertamina to merge its gas exploration and production arm PT Pertagas with PGN. In return, Pertamina would have a 30 percent stake in PGN. Another possible acquisition scenario would see Pertamina acquire PGN first and then merge it with Pertagas.

Kiswoyo said '€œall the available scenarios are unfavorable.'€

Instead, Kiswoyo said, the government should allow PGN to acquire Pertamina'€™s subsidiary, Pertagas, as it guaranteed more efficient gas distribution in the country and was less risky for PGN'€™s performance, as well as giving Pertamina a chance to focus on its oil business.

PT Panin Sekuritas analyst Fajar Indra agreed that it would be better if PGN acquired Pertagas, as it would improve the gas distributor'€™s performance on the Indonesia Stock Exchange (IDX).

'€œStill, we first have to see how the plan would be carried out before predicting how it would affect PGN'€™s stocks,'€ he said.

At present, the government controls a 57 percent stake in PGN, with the investing public holding the remaining 43 percent.

The acquisition is an additional burden for Pertamina as it struggles to prevent losses from distributing fuel subsidies and the selling of gas canisters.

Since 2008, Pertamina has suffered financial losses of Rp 21.8 trillion (US$1.80 billion) from selling 12-kilogram liquefied petroleum gas (LPG) canisters below market prices.

The Supreme Audit Agency (BPK) has warned Pertamina that it needs to prevent future losses in its LPG business.

Despite the ongoing uncertainty, PGN shares rose 2.9 percent on Friday to close at 4,385 following a 2.5 percent drop on Thursday.

PGN recorded a 20 percent rise in revenue to $2.20 billion in the first nine months of last year compared to the same period in 2012. Its net profits grew by 3.3 percent to $641.6 million from January to September last year.

Trust Securities analyst Reza Priambada said, as quoted by kontan.co.id, that investors did not favor the acquisition plan as, despite the general good performance of infrastructure stocks in the last couple of days, PGN'€™s share price
had started to drop following the rumors of the acquisition.

PGN shares, which trade on the IDX under the code PGAS, have plunged since the rumors began circulating.

Also, a new controversy began last week when newspapers published leaked minutes of a meeting between Dahlan and Pertamina executives on the latter'€™s proposal to acquire PGN. Dahlan subsequently denied giving the acquisition plan his blessing.