Santos capital raising falls short

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The retail component of a $2.5 billion capital raising to strengthen the balance sheet of energy company Santos has come in short.

Only 57% of the 1 for 1.7 share entitlement was taken up by retail shareholders. This raised $775 million.

Now about 152 million retail entitlements, with a value of about $585 million, will be offered for sale in a retail shortfall bookbuild.

However, Santos executive chairman Peter Coates says he’s pleased with the support from retail shareholders despite oil prices.

“The results of the retail and institutional entitlement offers demonstrate recognition from shareholders of the long-term value in Santos and their support for the initiatives the company has taken to substantially strengthen its balance sheet,” says Coates.

The offer, priced at $3.85 a share, is fully underwritten by Citi, Deutsche Bank and UBS.

Santos has been cutting costs and shedding staff in response to falling oil prices. Capital expenditure is down by $900 million and 768 jobs have gone. And costs to produce a barrel are down 15% to $13.80.

The company’s net profit dropped to $37 million for the half year. The oil and gas producer managed to get just $US60 per barrel in the six months to June compared to $US115 in the previous first half, a 47% fall.

The $2.5 billion capital raising is part of a $3.5 billion plan to pay down debt.

Another $520 million will be raised from sale of the company’s interest in Kipper gas field to Mitsui E&P Australia.

And $500 million will come an affiliate of the China-based international private equity firm, Hony Capital through a from a private placement of shares at $6.80 each, a 15% premium to Friday’s closing price of $5.91. Hony Capital will end up with a 7.9% holding in Santos.

Kevin Gallagher, the CEO of engineering services group Clough, starts as the new CEO of Santos early 2016.

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