So will this be enough to isolate Santos’ (STO) mysterious would-be bidder, Scepter Partners?
Probably, unless the group and its equally mysterious backers can find billions more to add to their lowball offer of $6.88 a share.
After a busy day yesterday which saw Santos find a new CEO and announce $3.5 billion of capital initiatives including an asset sale, a $500 million private placement and a $2.5 billion capital raising, the outlook for the unwanted bid seems problematic.
At the same time Santos will cut future dividends to shareholders to preserve more capital, starting with a small payment as the final for the 2015 financial year (the company balances at December 31).
The new Santos boss will be Kevin Gallagher, currently CEO of engineering services group Clough (and a former Woodside executive). Mr Gallagher will start in “early 2016” Santos said in its statement and 60 pages of new strategy details that were issued to the ASX yesterday.
The cash call is in the form of a fully underwritten accelerated pro-rata renounceable entitlement offer with retail entitlements trading, and is priced at $3.85, well below the last trading price of $5.91.
The company also announced a $500 million private placement at a 15% premium to last close to an affiliate of the China-based international private equity firm, Hony Capital.
Santos also said it had raised $520 million from the sale of an interest in Kipper gas field (off Gippsland in Victoria) to Mitsui E&P Australia.
Santos revealed its new dividend policy, setting the payout ratio at a minimum of 40% of underlying net profit. The company said it will target a payment of 5 cents per share for the 2015 final dividend.
"The $3.5 billion of capital initiatives reinforce the Santos balance sheet and mark a significant step towards restoring long term value for shareholders," executive chairman Peter Coates said.
Mr Coates said debt would be reduced by a total of $3.5 billion.
The capital raising is a controversial move given that Santos and its board has ruled out such a move for months.
The Horny Capital placement is in addition to the 1.4% the investment company already owns in Santos. That will take its stake to 7.9% and it has agreed to hold its stake to a maximum of 9.9% for three months (implying that Horney will buy more shares).
The capital raisings came just over two weeks after Scepter Partners offer. It has been claimed in media reports, but with no direct proof, that Scepter is backed by sovereign wealth funds and the royal families of Brunei and the United Arab Emirates.
STO 1Y – Santos caves in on capital raising
Yesterday’s announcements also came around three months after Santos said it would undertake a full review of its entire business, and that chief executive David Knox would depart and that Mr Coates would move from being a board member to executive chairman and would oversee the examination and search for the new CEO.
Local investors would not have noticed a story in the Monday edition of The Financial Times about how Saudi government officials had told the paper that the Opec major would not be cutting production to boost oil prices. It was an important statement ahead of the end of year Opec meeting on December 4 in Vienna.
It will pressure other Opec members, such as Libya, Nigeria and Venezuela which have been agitating for a cut in Saudi output to boost prices and relieve financial pressure on their budgets. Iran is likely to want to boost its production in the first half of 2016 to take advantage of the easing of sanctions.
For companies such as Santos, it means more pressure on balance sheets lies ahead on 2016 and more pressure to reduce debt and improve cash flows.
