Santos Capital raising: Shortfall to be managed by raising $585 million extra from retail entitlements

Australian energy major Santos (STO. AU) on Wednesday said it could sell only 57 percent of its $1.33 billion rights issue entitlements to retail investors. The rights entitlement offer involved a total corpus of $2.5 billion. Santos will complete the sale of the remaining retail entitlements by Thursday.

The company has already raised $1.17 billion from institutional investors in November at an offer price of shares on 1-for-1.7 rights at 3.85 each, reported News.com.Au The retail component of $2.5 billion capital rasing is aimed at strengthening the balance sheet. With 57 percent of the entitlement having been taken up by retail shareholders at $775 million, the remaining 152 million retail entitlements at $585 million is now up for grabs as a retail shortfall book-build, added a report from Business Insider.

Despite the shortfall, Executive chairman Peter Coates expressed happiness at the response for the retail offer amidst falling oil prices.

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

Heavy dip in profits

Santos announced the raising of a total $3.5 billion through share and asset sales after suffering an 82 percent dip in its first half year profit. Its net profit plunged to $37 million for the half year.

The company bore the brunt of falling commodity prices and shares tumbled to half the value since May 2015, added the report by Business Insider. Since then, Santos has been on a cost efficiency drive and spearheading cost-cutting initiatives. It downsized personnel strength in response to the falling oil prices and cut capital expenditure by $900 million and slashed 768 jobs.

It cut the cost of producing a barrel of oil by 15 percent at $13.80. Santos has plans to raise another $520 million from the sale of company’s stake in Kipper gas field to Mitsui E&P Australia.

According to Business Insider, Santos will raise $500 million via private placement from the affiliate of China-based international private equity firm, Hony Capital at $6.80 each, at a 15 percent premium of the last closing price at $5.91. That will give Hony Capital a 7.9 percent holding in Santos. Santos will have a new CEO in early 2016, with Kevin Gallagher of engineering services group Clough, taking over shortly.

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