Hony to exit Australia's Santos to China-based ENN

Hony will in turn acquire RMB2.47 billion ($380 million) worth of newly issued shares in ENN Ecological Holding, a Shanghai-listed subsidiary of ENN, via Hony Capital Fund VIII. It will become the second largest shareholder in the subsidiary. This is part of a RMB3.3 billion private placement conducted by ENN Ecological in order to finance the acquisition and pay down debt, according to a filing. 

The deal comes four months after Hony purchased an additional 6.5% stake in Santos for A$500 million ($381 million), participating in a share placement intended to help the Australian company reduce its debt load. Prior to that, Hony held a 1.4% stake in Santos.

"We chose to invest in Santos because of its strategic position in Australia and synergies with the rapidly growing China energy market. Bringing in ENN as a strategic investor will help Santos connect to that opportunity in China, and at the same time we are helping a Chinese company expand internationally," John Zhao, Hony's chairman, said in a statement announcing the partnership with ENN. The GP added that it will continue to support ENN's national and international growth.

The acquisition will give ENN its first exposure to upstream energy, said Yusuo Wang, chairman of the ENN Group. This will further the company's ambitions to become a vertically integrated, international natural gas company.

ENN sold 11.3 billion cubic meters of natural gas in 2015, supplying more than 12 million households and over 56,000 industrial and commercial users. It operates a network of 576 liquefied natural gas (LNG) and compressed natural gas (CNG) refueling stations. Every year, it distributes about 1.88 million tons of LNG, accounting for 20% China's overall LNG trading volume.

The company is currently building an LNG terminal in Zhejiang province to receive imported natural gas. The project is expected to have an annual capacity of three tons of LNG when the initial phrase is completed in 2018.

ENN has two publicly-traded subsidiaries. While Shanghai-listed ENN Ecological focuses on mining, Hong Kong-listed ENN Energy specializes in gas distribution. ENN is also involved in other cleantech segments, including solar energy and clean coal technology.

Australia-listed Santos concentrates on the exploration and production of upstream natural gas and petroleum resources, as well as the development of midstream LNG terminals in Asia. At present, it has stakes in three terminal projects in Australia and Papua New Guinea. Its most recent project, Gladstone LNG in Queensland, started production in September last year.

Santos's generate revenue of A$3.3 billion in the 2015 financial yeara, down from A$4.1 billion in 2014. Its net loss widened to A$2.7 billion from A$935 million.

Hony is seeking to raise $2 billion for Hony Capital Fund VIII, which reached a first close of $1 billion late last year. On top of the main fund, the GP is also raising a $600 million co-investment side vehicle that allows LPs to participate in cross-border transactions outside of China. 

The ENN transaction is subject to shareholder and regulatory approvals.

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• Topics
• Greater China
• Australasia
• Cleantech
• Trade sale
• PIPEs
• China
• Australia
• Exit
• PIPE
• Hony Capital
• Commodities
• Cleantech