Santos stocks slump, suffer worst session this year

Santos has suffered its worst market performance this year, after surprising with its $1.5bn capital raising.

Analysts were mixed on the merit of the Santos capital raising.

Santos has recorded its worst trading day of the year after surprising markets with a $1.5 billion capital raising last night.

The company has already successfully completed the $1.04bn institutional component at $4.06 a share, while a further $500 million will be requested from retail investors at the same asking price.

The share valuation represented a 7.9 per cent discount to its last traded price, which placed intense pressure on the company’s shares today.

By the close of trade on Thursday, the company had wilted 10.66 per cent to $3.94, around 3 per cent below the raising price, with investors factoring in a 15 per cent increase in the number of shares on issue as well as a 3 per cent slump in crude prices overnight.

It represents the company’s most significant drop of 2016 to date.

The response leaves the retail component of the raising in a precarious position as mum and dad investors will be reluctant to lend their support if the strike price remains above the current market value.

Analysts were mixed on the merit of the raising, but the consensus was it came at an unexpected time given a recent strategy day offered no hint of a raising.

As part of that presentation the group announced it would split off its 23 non-core assets from its five prized projects, while also spruiking positive moves on cost reductions.

“We find the notion of a Santos equity raising now a little difficult to reconcile with the raft of self-help measures outlined at Santos’ annual strategy day,” RBC Capital Markets analyst Ben Wilson said.

“We can understand why new management may want additional financial capacity, reduce debt further and possibly apply more funds to expansion capex; however the requirement for new equity capital is somewhat at odds with the messaging put forward last week.”

Credit Suisse analysts were similarly taken on the run, despite long warning of a stretched balance sheet.

“Whilst the timing of the announcement surprises us greatly (six days post the strategy day, 5:18pm release, 5:30pm conference call for which we weren’t provided details), we see the raising as the correct decision to address a balance sheet that, in our view, remained far too heavily geared,” analyst Mark Samter said.

“(However) with push back to any suggestion that more equity was needed, even as little as six days ago, we are puzzled with what may come next.”

UBS is more optimistic as it retains a ‘buy’ rating on the stock, spruiking the options for expansion opened up by the raising while many others focus on the debt reduction opportunity.

Among expansion options listed were a direct equity stake in LNG projects in Papua New Guinea, a lift in its interest in the Darwin LNG facility as well as other gas options in the Northern Territory and Western Australia.