Chinese investor ENN offloads Santos stake

Morgan Stanley and UBS are selling $785 million worth of shares out of Santos on behalf of Chinese investors Hony Capital and ENN. The trade equates to 5.1 per cent of the company and will likely see Hony Capital lose its board seat.

ENN and Hony Capital are related parties and they will have a stake remaining in the business of 9.9 per cent. Shares are being offloaded at $7.33 each and the book was covered on Friday night. The price is a 5.5 per cent discount to the last close of $7.76.

According to a term sheet sent to investors, the parties offloading the interest are Xinneng, Great Multitude and ENN. The sale comes after a recent rally in the Santos share price, recovering from almost a year ago when the oil price crashed at the onset of the global pandemic.

The term sheet said there were about 107.1 million securities being sold. Following the block trade, the vendor’s retained shareholding of 9.97 per cent would be held under voluntary escrow for a period of 90 days, the term sheet said. Santos announced in 2016 that ENN had purchased an 11.7 per cent interest in the company for US$750m or about $4.83 per share after it had wrestled with high debt levels in the aftermath of an oil price decline.

This was by way of a private placement. At its half year results, Santos reported a 60 per cent drop in underlying profit to $US287m due to the oil price decline.

The move by the Chinese group comes amid a period of growing trade tensions between Australia and China, although sources say the most likely reason for the trade is a refinancing. It also comes after Genworth Financial divested its 52 per cent holding in Genworth Mortgage Insurance Australia last week for $488.6m with the offer oversubscribed.