In this briefing:
- SPINOFF: Xinyi Solar Spinoff of Xinyi Energy
- Weekly Oil Views: Crude’s Fear Premium Looks Iffy but Supply Slumps Are Real
- M&A LNG Theme Back in the Spotlight with Total’s Entry in Mozambique LNG
- Bristow – Is There an Opportunity to Invest Prior to the Financial Restructuring?
- Xinyi Energy (信义能源) IPO: An Overvalued Deal Disguised by High Dividend
XSH is spinning off its subsidiary Xinyi Energy Holdings Ltd (3868 HK).
According to the prospectus, XEH will issue 1.88bn – or up to 2.165bn (inclusive of the over-allotment) new shares, at an issue price between HK$1.89-$2.35/share, raising US$456mn-US$652mn. After the listing, XSH will hold ~53.7%.
My interest is whether these spin-offs create new parent/subsidiary relationships leading to relative value trade ideas going forward, which will be dependent on the spin-off’s liquidity and the % market cap held by the parent.
Using available information from the prospectus/red herrings and various HKEx announcements, it is also possible to back out a rudimentary implied stub value of the unlisted parent’s operations ahead of these spin-offs.
At between 35-45% of Xinyi Solar market cap, this will be a new Holdco/subsidiary relationship to follow, depending on XEH’s volume.
Discussion of the spinoff and stub valuations continues below.
Two main developments have been driving short-term sentiment in crude — US-China trade tensions and the Middle East geopolitical tensions — and oil market participants don’t have a clue on what to expect on either front.
There may be a $2-3/barrel fear premium in Brent on account of last week’s attacks on Saudi oil tankers and an oil pipeline, both allegedly the handiwork of Iran. However, US President Donald Trump was trying to defuse the tension by the end of last week, saying he is looking to negotiate not go to war with Iran. We expect the political temperature in the Middle East to cool down quickly, taking the fear premium with it.
On the US-China trade war front, continuing rhetoric and smoke signals instead of reports of concrete action will likely keep the world guessing. We expect the situation to keep a lid on oil prices while adding to the volatility.
The IEA, OPEC and the US EIA have all lowered their 2019 global oil demand growth forecasts in the past two months. However, it would be dangerous for the OPEC/non-OPEC ministers gathering in Vienna next month to roll over their pledged 1.2 million b/d of output cuts into the second half of the year. Even if Saudi Arabia and a couple of other countries exceeding their cuts pledge to ratchet up production in line with their quotas, they would fall well short of compensating the exports already being lost from Venezuela and Iran, flinging the market into severe supply tightness.
This insight has been produced in collaboration with Anish Kapadia as a joint effort of the Smartkarma Energy and Commodities Team.
With the acquisition of Anadarko Petroleum (APC US) ’s African assets from Occidental Petroleum (OXY US) for $8.8bn, Total Sa (FP FP) is adding a new LNG export position in East Africa to its growing global LNG portfolio. The acquired assets also include high-quality low cost producing fields offshore Ghana.
Total has been one of the most aggressive oil majors pursuing countercyclical upstream M&A during the oil downturn to expand its resource base at low cost. Is the French major paying a reasonable price for Anadarko’s assets?
The ongoing “re-gasification” of the oil majors’ portfolios is underpinning a growing interest among LNG buyers and portfolio players for quality LNG assets. Total’s entry in the prolific East Africa gas play is the latest example highlighting the LNG “theme” as one of the main strategic drivers of recent and likely future M&A activity in the oil and gas industry.
We believe that Bristow’s senior secured bonds are overvalued at current levels of ~ 86% and would be better BUYERS in the low 60’s based on our valuation.
Accordingly, our analysis suggests that the value breaks in the senior secured part of the capital structure and we expect recoveries on the unsecured bonds to be close to zero.
Xinyi Energy, the subsidiary holding solar assets of Xinyi Solar Holdings (968 HK), started book building today. In our previous insights, we have discussed the company’s fundamentals, and the valuation based on future cash flow. In this insight, we will provide our final view on the deal.