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February 26, 2013 11:13 am
Repsol, the Spanish oil company, has sold a collection of liquefied natural gas assets to Royal Dutch Shell for an enterprise value of $6.7bn in its most significant divestment since its YPF unit was nationalised last year by the Argentinian government.
In a deal that will cut Repsol’s net debt in half to €2.2bn the company will sell its LNG assets to Shell in Trinidad and Tobago, Peru and Spain to generate a pre-tax capital gain of $3.5bn.
Following the expropriation of Repsol’s Argentine YPF unit by the country’s government last year, the Spanish group has been battling to maintain its investment-grade credit rating by cutting its debt levels. Repsol reports full-year earnings on Thursday.
The proposed deal to sell Repsol’s LNG business had been delayed as a result of complications surrounding the Canadian part of the unit, Canaport, which will not be included in the sale.
The sale is based on a valuation of $4.4bn in cash and $2.3bn in financial leases and debt. The Spanish company will take a $1.3bn net provision on the Canadian business.
Canaport, which is three quarters owned by Repsol, has proven to be the least attractive asset in the package as a result of a glut of shale gas in North America pushing down the continent’s gas prices.
Companies including France’s GDF Suez and Russia’s Gazprom had considered bidding for the unit, but eventually withdrew from the auction, which is being run by Goldman Sachs. Early in the process Repsol had said it had received expressions of interest from 10 companies.
Since the expropriation of YPF, Repsol had been forced to launch a strategic overhaul to sell assets and cut its debt after all three leading credit rating agencies placed the company’s rating on the cusp of being downgraded into “junk”.
Earlier this year Fitch said the company’s credit rating could be upgraded if it was successful in selling assets to reduce its debt.
“The sale of Repsol’s LNG assets would allow Repsol to remove a large debt burden from its balance sheet, although the potential exclusion of Canaport may influence final figures,” said analysts at BPI. “More importantly, the sale of LNG assets at the amounts mentioned, should allow Repsol to maintain its credit rating, which is its primary aim.”
Repsol shares fell 2.4 per cent on Tuesday to €15.46.
Additional reporting by Guy Chazan
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