Harbour Energy’s Linda Cook eases tax concerns over Santos bid

Linda Cook says Santos will be a well capitalised Australian company and ‘subject to all the same taxes Santos is today’.

Harbour Energy boss Linda Cook.

Harbour Energy boss Linda Cook says Santos will be a properly capitalised stand-alone Australian company with no parent loans if her $13.5 billion takeover of the Adelaide icon is successful.

Ms Cook was responding to questions raised over whether Harbour’s intended debt levels and Cayman Island registration would cut Australian corporate tax takings and whether that would be a concern for Scott Morrison if he has to rule on the deal.

On Tuesday, Santos revealed it had allowed the privately owned US predator to do due diligence on its assets after Harbour made a $6.50-a-share cash approach, up from a $4.55-a-share original proposal in August.

If due diligence is successfully completed to the planned April timetable, the biggest risk to the proposal (at a 30 per cent premium to the Santos share price before it was released) is that it will be blocked or changed by the Treasurer and the Foreign Investment Review Board.

Yesterday, Ms Cook told The Australian Harbour was sensitive to the iconic nature of Santos, its important role in the domestic gas market and its role as an employer in South Australia, Queensland and Western Australia.

“We’ve tried to demonstrate we are sensitive to that and one aspect of that is we are using an Australian company to acquire Santos and Santos will remain an Australian company,” she added.

“The company set up to buy it will be Australian and it will be subject to all the same taxes Santos is today.”

The Australian’s Margin Call column yesterday revealed that Cayman Islands-registered Harbour had set up an Australian vehicle to pursue the Santos acquisition.

Ms Cook, Harbour chairman Blair Thomas and Andy Zhumrovsky, Harbour manager EIG Global Energy Partners’ Australian representative, are its directors.

Ms Cook said a Cayman Island registration was common for companies using a range of international investors, stressing that it would not reduce Australian taxes. “It’s very common that companies using funds from a number of international investors are aggregated in a Cayman vehicle,” she said.

Ms Cook added that tax would be paid locally by the Australian company and after-tax profits would then return to the Cayman vehicle to be distributed to investors who would pay tax in their own jurisdictions.

“It’s in no way meant to get around paying taxes that would be due in Australia,” she said

Harbour intends to raise $US7.75 billion ($10bn) debt through Morgan Stanley and JPMorgan.

Combined with unspecified equity, this will cover the roughly $US11bn of cash Harbour will need to pay for both the 80-85 per cent of Santos shares Harbour is chasing and refinancing the company’s $US2.5bn of net debt.

Harbour’s bid is conditional on 15-20 per cent of Santos shareholders remaining in the acquired, unlisted company, in a move targeted at keeping 15 per cent joint shareholder, China’s ENN Group and Hony Capital, on board.

Credit Suisse analysts have pointed out that increased debt would give a Harbour-owned Santos more deductible interest costs, which would result in less Australian corporate tax income and could worry the FIRB.

Ms Cook said the Santos asset base could take on more debt to be properly capitalised.

“We are very comfortable with that size of debt, given the asset base, and think it’s very appropriate,” she said. “We felt it was the most efficient structure to help us raise equity and help us raise more equity for the growth we are going to undertake.”

The Harbour chief executive confirmed The Australian’s report yesterday that a Harbour-owned Santos would have a strong representation of Australian non-executive directors.

She said she would not be the company’s chief executive but probably its chairwoman.

This is the same set-up Harbour has put in place at Chrysaor after buying Shell’s North Sea oil assets for $US3bn last year. Chrysaor has Harbour chairman Blair Thomas and Harbour director Steve Farris on its board as non-executive directors, and four non-executive directors with no stated association to Harbour.

Santos shares remained well below the bid price, signalling uncertainty over FIRB. The stock rose 1c to close at $5.85 yesterday.