Repsol pours cold water on Gas Natural stake sale - sources

Reuters
A woman stands beside the logo of Spanish oil company Repsol outside its headquarters in Madrid
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A woman stands beside the logo of Spanish oil company Repsol outside its headquarters in Madrid May 16, 2013. REUTERS/Sergio Perez

By Andrés González and Sophie Sassard

MADRID/LONDON (Reuters) - Spanish oil major Repsol (MCE:REP) is putting the brakes on the planned sale of a 30 percent stake in Gas Natural Fenosa (MCE:GAS), sources said on Monday, facing the need to offer a steep discount to attract buyers.

Since Repsol announced plans in July to sell the stake, worth 4.7 billion euros (3.97 billion pounds), the market had bet on a sale as soon as the year. Now the tides have turned.

"The pressure to sell Gas Natural is less and less," a source with direct knowledge of the matter said on Monday.

Repsol declined to comment, saying only that it never had a specific timeframe for the sale.

Repsol opened the door to selling its Gas Natural stake because the sale of its LNG business to Royal Dutch Shell (RDSa.L), due to close this year, diminished the holding's strategic rationale.

The sale to Shell was aimed at cutting debt and conserving its investment grade credit ratings after the nationalisation of its stake in Argentina's YPF (YPFD.BA) in 2012.

The sale of Gas Natural, with a booming business in LNG - the world's fastest growing commodity - was meant to attract funds to invest in the oil major's exploration and production business.

THE CAIXA HITCH

The main setback in the sale has been Gas Natural's No. 1 shareholder, banking powerhouse La Caixa (MCE:CABK).

With a 35 percent stake in the Spanish gas and electricity utility, La Caixa could limit the decision-making power of smaller shareholders over the firm, putting a cap on Repsol's prospects for seeking a premium on the stake sale.

Middle Eastern sovereign wealth funds including ADIA and Kuwait's looked at Repsol's stake before declining to buy it, leaving Singapore's sovereign wealth fund Temasek (TEM.UL) and Chinese refiner Sinopec as the only possible investors left, said a banker who's been talking to potential buyers.

"Sinopec told us they are still sceptical about the rational of such deal for them," said the banker, who asked not to be named because the talks are private.

He said Qatar could not look at Gas Natural because they already own 8 percent of domestic gas and electricity rival Iberdrola (IBE.MC).

The preferred scenario for Caixa would be for the stake to go to a long-term strategic partner who would stay the course without asking for a shareholding pact. But no one is ready to do so, said the same banker.

"You need a Chinese or a private investor free from market constraints here. Strategic players would be killed if they bought a minority stake in a Spanish company they cannot control."

SMALL STAKES AT A DISCOUNT

Were it not for La Caixa's control, companies such as GDF Suez (GDF.PA) and EDF (EDF.N) of France and Italian gas grid operator Snam (SRG.MI) would have been interested in Gas Natural, sources with knowledge of the matter said.

While separate sources say Caixa is open to selling a small stake in Gas Natural, the bank has said it is committed to remaining a leading and controlling shareholder.

Therefore, if a sale were to go ahead, the most likely outcome is for Repsol to sell stakes of around 10 percent to Temasek, possibly Sinopec and the rest in the market.

Such a sale would have to carry a discount of at least 5 percent, bankers said, because investors would otherwise argue that they could get a better deal by buying in the market.

Gas Natural, whose shares have gained 37 percent over the past year, trades at price-to-earnings ratio in line with the sector at around 11.7 times.

It accounts for 21 percent of Repsol's operating profit.

(Additional reporting by Tracy Rucinski in Madrid and Anjuli Davies in London; Writing by Tracy Rucinski; Editing by David Evans)

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