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* Loans: APAC's largest LBO loan primed for US sell-down
By Sharon Klyne
April 9 (TRLPC) - JP Morgan and Morgan Stanley are underwriting a US$7.75bn senior debt financing backing the leveraged buyout of Australian oil and gas producer Santos Ltd that will set a record for LBO and related debt financing in Asia Pacific.
The deal dwarfs Asia’s previous LBO record, a US$4.1bn buyout loan backing the acquisition of Singapore-based Global Logistic Properties Ltd last July, and is also the largest private equity buyout in the oil and gas sector globally.
Santos announced on April 3 it had received a US$10.4bn takeover bid from US private equity firm Harbour Energy and agreed to grant the bidder access to due diligence. If the bid is successful, the private equity sponsor will own a low-cost energy producer with stakes in several large liquefied natural gas (LNG) projects in Asia.
The financing, which will be targeted mainly at the US institutional market, will consist of leveraged loans and high-yield bonds with various tenors. Investor demand is expected to be strong, given the appeal of the assets, location and growing demand for gas.
“There’s enough appetite for an oil and gas deal of this size. It's an industrialised nation and the company has a well-diversified asset-base,” a banking source in New York said.
A data room is expected to open this week for six weeks. Santos revealed in November that it had rebuffed a A$9.5bn (US$7.29bn) takeover approach from Harbour Energy in August, which it said undervalued the company.
The new borrowing will also refinance all of Santos's debt. Santos, rated BBB− (S&P), had total balance sheet debt of US$3.95bn, including US$800m of medium-term notes, and US$1.23bn of cash as of December 2017.
The company also has US$960m in off-balance sheet operating lease liabilities and asset retirement costs, according to Deutsche Bank estimates. However, there will be no need to refinance any of the project debt at the asset level if Harbour Energy succeeds in the acquisition, other banking sources familiar with the deals said.
Santos has stakes in projects including the prized Papua New Guinea LNG project operated by Exxon Mobil Corp, Gladstone LNG project in Queensland, Darwin LNG, and Cooper Basin, Australia’s largest onshore oil and gas development.
The company significantly lowered production costs and de-leveraged in the aftermath of the 2008 financial crisis. Its average oil production cost is just over US$32 a barrel, compared to around US$66 a barrel for Brent crude, according to Reuters data.