Hony commits $381m to Australia-listed oil player Santos

In addition to Hony's purchase, Santos will issue A$2.5 billion in new shares to existing investors. This issue will be made at a price of A$3.85 per share, a 35% discount to the closing price of A$5.91 on November 6. The Hony shares, by contrast, will be sold at A$6.80 apiece, a 15% premium.

Santos will also sell its 35% stake in southeastern Australia's Kipper gas field to Mitsui E&P Australia for A$520 million. The sale is expected to close in the first quarter of 2016. Proceeds from all three components will be used to repay debt.

Santos' fundraise is the result of its recently-concluded strategic review, in which the company also announced the appointment of Kevin Gallagher as managing director and CEO of Santos. Gallagher is currently the CEO of engineering services group Clough, a post he has held since 2011.

Last month Santos rejected a takeover bid from PE firm Scepter Partners. It had offered A$6.88 per share, in cash, for all of the company's shares; Santos characterized the offer as "opportunistic" and said it did not accurately reflect the value of the company's assets.

Santos launched its review in August amidst mounting criticism of the management team for difficulties with the numerous investments that the company made expecting continued increase in demand for energy from Asian customers. In its most recent annual report, the company recorded revenue increasing from A$3.6 billion to A$4 billion; however, it moved from a net profit of A$516 million to a net loss of A$935 million.

Hony already holds a 1.4% stake in Santos; the newly issued shares will increase its stake to 7.9%. The investment in an Australian company is unusual for the GP, which normally seeks investments in China or in overseas businesses it can help expand in the country.

Hony's choice could be based on expectation of improved prospects for Santos in China's energy market, similar to RRJ Capital's string of investments in US-based liquefied natural gas producer Cheniere Energy. The most recent was a subscription to a $1 billion convertible notes issue last November.

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• Topics
• Australasia
• Greater China
• PIPEs
• Infrastructure
• Infrastructure
• Australia
• China
• Hony Capital
• energy
• Infrastructure
• PIPE
• Commodities