ENN 'cautious' on Harbour's $13.5b takeover proposal
ANGELA MACDONALD-SMITH APRIL 09, 2018
One of Santos's two Chinese shareholders has reacted "cautiously" to Harbour Energy's $13.5 billion cash takeover bid for the oil and gas producer, underlining uncertainty whether or not they will constitute a major obstacle to a deal.
In its first words on Harbour's offer since it was announced last Tuesday, ENN Shareholding Co, which owns about 10.07 per cent of Santos, emphasised the importance of the holding for the Chinese gas distributor's long-term strategy and said it had little interest in selling its stake for cash.
In a statement released to the Shanghai Stock Exchange, ENN also spoke positively on the long-term growth potential of Santos and said it wanted to keep its strategic cooperation alliance with the Adelaide-based producer.
"Santos is an important component of ENN long-term clean energy strategy," it said.
"We are positive on the long-term development of Santos and would like to maintain long-term cooperation with Santos. We are not inclined to sell off shares for cash."
ENN said that a team set up by the ENN board was to start initial talks with Harbour, with a view to maximising shareholder value.
The board, which met on April 3 to discuss Harbour's circa $6.50 a share proposal, would "cautiously consider" Harbour's proposal that ENN and fellow Chinese shareholder Hony Capital could roll over their stake in Santos into an unlisted vehicle that would own Santos, Bloomberg said, citing a statement.
Harbour chief executive Linda Cook said last week that arrangement had been designed to accommodate the desire for the Chinese pair to remain long-term investors in Santos and their stance that they were not invested just to make a short-term return.
The position of ENN, China's biggest gas distributor, and of Hony, a Chinese private equity firm, is being cited as one of the key uncertainties around Harbour's chances of sealing a takeover of Santos, perhaps running second only to Foreign Investment Review Board approval.
RBC Capital Markets analyst Ben Wilson said the support of ENN and Hony, which hold a combined stake of about 15 per cent in Santos, is "almost critical" to a successful deal.
The presence of the two Chinese players on the register is also expected to attract scrutiny from FIRB, especially amid suggestions from Credit Suisse that they may end up with the biggest equity stake in the new Santos because of the $US7.5 billion debt package expected to help fund the takeover.
Under a strategic alliance signed between Santos and ENN/Hony last June, the Chinese pair is prevented from blocking a takeover recommended by the Santos board, provided the offer price is above their average price for buying their holding. They can however counter any offer.
Mr Wilson said in a note last week that it was "reasonable to assume" the average entry price of ENN and Hony is below that of Harbour's offer and suggested the unlisted vehicle arrangement "provides additional incentive" for the two to support the bid.
ENN said in the statement on Monday that its average investment price in Santos is $4.98 a share.
The alliance also provides for Santos and the Chinese pair to give each other preference in future investments in gas and LNG in Australia and Papua New Guinea, an advantage that may not survive under Harbour. ENN also currently has a representative on Santos's board, Eugene Shi, vice president of ENN Ecological and general manager of ENN's investment management division.
Santos shares have traded within a narrow range about 10 per cent below Harbour's proposed offer since leaping 16.2 per cent the day it was announced. The stock added 2¢ on Monday to $5.90.
Hony Capital is yet to comment on the Harbour proposal.
(20min delay)
