Repsol Said to Expect $2.7 Billion LNG Sale by February
Repsol SA (REP), Spain’s largest energy company, expects to sell liquefied natural gas assets for about 2 billion euros ($2.7 billion) by early February, according to a person familiar with the matter.
The sale price excludes debt, said the person, who declined to name the buyer or be identified as the deal hasn’t closed. Repsol said in November it planned to agree on a sale, including assets in Peru, Trinidad and Spain, by the end of last year. A company official in Madrid declined to comment on its progress.
The oil driller is trying to keep its investment-grade debt rating by selling 4.5 billion euros of assets by 2016 and paying down borrowings. Moody’s Investors Service cut its rating to one level above junk and gave the company a negative outlook after Argentina seized its YPF business in April without compensation. YPF made up almost half of Madrid-based Repsol’s oil reserves.
GDF Suez (GSZ) SA, the biggest buyer of gas in Europe, was “looking” at Repsol’s LNG assets, the French company’s Chief Executive Officer Gerard Mestrallet said in an interview in October. Asked last week about the assets, Mestrallet said the question was “very relevant,” declining to comment further.
The Paris-based company is in talks on buying at least some of the assets, said a person familiar with the situation, who asked not to be identified as discussions are private. The utility has to balance any acquisitions with a pledge to sell 11 billion euros of its own assets in 2013 and 2014.
Repsol climbed 0.8 percent to 16.56 euros by 4:27 p.m. in Madrid, as the Euro Stoxx Oil & Gas index rose 0.3 percent.
Selling LNG assets “will prove enough” to keep Repsol’s investment-grade rating and “avoid the need to sell treasury shares immediately or convert the preference shares,” Barclays Plc’s Lydia Rainforth and Rahim Karim wrote in a Dec. 14 note.
The credit rating was also reduced to one level above junk by Fitch Ratings and Standard & Poor’s, which set the company’s debt outlook at negative and stable, respectively. Repsol reported net debt dropped 1.9 percent in the third quarter to 12.9 billion euros compared with the second quarter.
Repsol’s debt has rallied, even as it considered swapping preference shares into mandatory convertible bonds to reduce interest payments, helped by about 1.9 billion euros of asset sales so far and stronger Spanish sovereign debt. The disposals include a 5 percent sale of treasury stock, gas assets in Chile and the partial sale of an offshore producing block in Ecuador.
Repsol’s 4 7/8 coupon euro bonds due in 2019 have risen, shrinking the spread with similar-term benchmark German bonds.
The spread has narrowed 343 basis points, to 235 yesterday, since Repsol revealed plans to sell LNG assets in July, data compiled by Bloomberg show. The gap in yields widened to about 241 basis points today, according to Bloomberg bond prices.
Among assets offered for sale were a stake in a liquefaction plant in Pampa Melchorita, Peru, with an annual capacity of 4.4 million metric tons, and the Atlantic LNG plant in Trinidad and Tobago, in which GDF already owned a stake.
The company reported that operating profit from its LNG business, which stretches from Canada to Peru, more than tripled in 2011 to 386 million euros, or 8 percent of the total.
China Investment Corp., which bought a stake in the exploration and production business of GDF Suez last year, was planning to meet Repsol to discuss the sale on Dec. 19, according to a report on Spanish news website El Confidencial that cited unidentified people.
LNG is natural gas cooled to minus 160 degrees Celsius (minus 256 degrees Fahrenheit) so it takes up about 600 times less space for transportation.
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