Hony backs $7.8b EIG bid for Australia's Santos

EIG – which is acting through Harbour Energy, an investment vehicle it formed to target upstream and midstream energy assets – has proposed a scheme of arrangement under which it would pay $4.98 per share, which is the equivalent to A$6.50, according to a filing. This price is unchanged from the non-binding offer Harbour Energy submitted in April, but that was without the commitment from Hony and ENN to roll over their shares into the acquisition vehicle.

Shares in Santos spiked 14.8% to A$5.89 in early April when the initial bid was made. Since then they have climbed gradually, although there was a slight jump on May 16 in response to reports of an impending deal, with the stock closing at A$6.36. It ended May 17 down 1.9% at A$6.20, giving the company a market capitalization of approximately A$12.9 billion ($9.7 billion).

Harbour Energy said in April it would finance the transaction with $7.75 billion in debt to be underwritten by J.P. Morgan and Morgan Stanley. Equity commitments would come from other EIG funds and Mercuria Global Energy, as well as from Harbour Energy itself.

Hony currently holds a 4.8% stake in Santos while ENN is the largest single shareholder in the company with 10.31%. Hony was responsible for ENN's initial investment in Santos. The GP owned 1.4% of the company and then purchased an additional 6.5% interest for A$500 million in late 2015. Hony further increased its holding before exiting an 11.7% stake to ENN for $755 million in March 2016.

As part of the 2016 divestment, Hony in turn acquired RMB2.47 billion ($380 million) worth of new shares in ENN Ecological, a Shanghai-listed subsidiary of ENN. Later in 2016 Hony resumed its interest in Santos, buying a 2.25% stake. The two Chinese groups announced a strategic relationship with Santos last June and around the same time increased their combined holding to $15.1%.

Established in 1954, Santos concentrates on the exploration and production of upstream natural gas and petroleum resources, as well as the development of midstream liquefied natural gas (LNG) terminals in Asia. It has 470 million barrels of oil equivalent (mmboe) in proved reserves across Australia and Papua New Guinea.

The company produced 59.5 mmboe in the 2017 financial year and sold 83.4 mmboe, generating $3.11 billion in revenue, up from $2.59 billion the previous year. With oil prices stabilizing, net profit increased from $63 million to $336 million.

EIG targets in energy and energy-related infrastructure on a global basis and had $17 billion under management as of September 2017. During its 35-year history, the firm has invested over $25.3 billion in the sector through 324 projects or companies in 36 countries on six continents. Last year, it took a minority stake in Australian oil and gas producer Senex Energy.

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• Topics
• Australasia
• Buyouts
• Industrials
• Australia
• EIG Global Energy Partners
• Hony Capital
• Commodities