Ann: Becoming a substantial holder - Harbour, page-22

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THE AUSTRALIAN ›
Chinese suitors plan Santos equity injection
SCOTT MURDOCH MAY 15, 2018The Chinese group ENN is expected to tip more equity into a privatised Santos after raising concerns that Harbour Energy’s plans for the company contained too much debt.

Harbour last night revealed that ENN and Hony, which own about 15.1 per cent of Santos, supported the current offer and were likely to retain their stakes in the company once it was privatised.

ENN shares were placed in a trading halt in Shanghai and last night Harbour said the three parties were now working in unison.

Harbour said it wanted to agree terms with ENN and Hony to put forward a finalised proposal to Santos after carrying out due diligence over the past six weeks. Harbour chairman R. Blair Thomas said it was a “significant milestone” for the three to be working together.

The support of ENN and Hony was key to the progression of Harbour’s deal, given the scheme of arrangement requires at least 75 per cent support.

The agreement also potentially rules out the likelihood of another bidder coming in over the top for Santos.

ENN’s stake is worth about $1.5 billion and it is understood the Chinese group is prepared to tip more equity into a privatised Santos.

The company is believed to have told Harbour that it believed the “new” Santos would have too much debt and, as a major shareholder, it was keen for the leverage to be reduced.

Harbour has offered $US4.98 a share for Santos which, when it was made in early April, translated to $6.50 and valued Santos at $13.5 billion. However, with the Australian dollar shifting lately, that has now increased to about $6.67. Santos shares closed last night at $6.23.

The bid will be paid for through equity and debt. Morgan Stanley and JPMorgan have agreed to underwrite a $US7.75bn debt package.

Santos currently carries $2.7bn worth of debt and revealed in January it had paid $1bn off in the past year.

A Harbour-owned Santos would have debt of nearly 50 per cent, which is considered high for an energy company. However, the company has ambitious expansion plans and Harbour has identified Africa and Asia as key locations to grow.

Harbour chief executive Linda Cook said the company was especially keen to build up its exposure in gas and LNG.

There has been ongoing speculation from analysts that Harbour would have to increase its bid to gain support from the Santos board.

Santos chairman Keith Spence flagged at the company’s annual meeting recently that an increased offer might be needed in light of the higher oil price.