Repsol SA (REP), Spain’s biggest oil company, sold treasury shares to Singapore’s Temasek Holdings Pte for 1 billion euros ($1.3 billion) to bolster finances and protect its credit rating.
Temasek, a state-owned investment company, bought the 5.04 percent stake for 16.01 euros a share, a 1.7 percent discount to the previous close, in Singapore’s largest investment in Spain, Repsol said today. Repsol’s 2.5 percent gain in Madrid made it the top performer on the MSCI EMU/Energy (MXEM0EN) index.
The sale “solves any lingering doubts over the credit rating,” Lydia Rainforth, an analyst at Barclays Capital in London, said in an e-mailed response to questions. It leaves Repsol “as a very well-funded company with better-than-average growth prospects in the sector.” Rainforth has an overweight rating on the stock.
The deal caps a flurry of events for the Spanish driller that has struggled to avoid being the largest oil company worldwide to be downgraded to junk. Last week, Moody’s Investors Service changed Repsol’s outlook to stable from negative after the Spanish driller announced the sale of most of its liquefied natural gas assets to Royal Dutch Shell Plc (RDSA) for $4.4 billion in cash excluding debt.
Repsol had said it would consider selling treasury shares or converting preferred shares to improve its debt position and avoid a credit-rating downgrade after the Argentine government seized its YPF business in April and refused to pay compensation.
The company will still have to convert its preferred shares to a different security to improve its financial position, Stuart Joyner, head of oil and gas analysis at Investec Securities Ltd. in London, said in an e-mail. On the positive side, he said today’s transaction removes a negative on the common shares, an “overhang” caused by doubt over a treasury- stock sale.
Repsol gained 2.5 percent in Madrid to close at 16.70 euros on about six times the three-month average volume.
For Singapore, the transaction marks an increasing appetite for energy investments, with Temasek raising its Repsol stake to 6.3 percent with the latest purchase.
The energy sector “is a good proxy for the needs of transforming economies and growing middle-income populations, both of which are part of Temasek’s investment themes,” Tay Sulian, managing director for investment at Temasek, said in an e-mailed statement.
Temasek’s Energy Interests
The share of energy and resources-related assets in Temasek’s portfolio doubled to 6 percent at the end of March 2012 from a year earlier, according the latest annual report, published in July. Temasek spokesman Stephen Forshaw confirmed the details of the report.
The Spanish driller sold the first 5 percent stake of the 10 percent acquired from Sacyr in the stock market in January 2012. That transaction and today’s together will have “a negative effect on reserves” of 148 million euros, Repsol said today.
“With this move, Repsol delivers on its objective to reinforce the balance sheet, not diluting shareholders,” BPI analysts wrote in a report e-mailed today.
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