CNOOC eyes US$10b in bonds and loans to fund Nexen deal

Chinese oil giant will not issue shares as it seeks to raise US$10 billion to finance proposed buyout of Canadian oil and gas company

PUBLISHED : Monday, 03 September, 2012, 12:00am
UPDATED : Monday, 03 September, 2012, 3:30am

Chinese oil giant CNOOC plans to raise up to US$10 billion in bank loans and by issuing bonds to finance its takeover offer for Canada's Nexen, the largest overseas acquisition by a Chinese company.

People familiar with CNOOC's capital-raising plans said the Hong Kong-listed unit of China National Offshore Oil had no intention of issuing new shares to finance the proposed US$15.1 billion Nexen deal because the company had sufficient cash on hand and strong cashflow.

The company hopes to complete the transaction, which is subject to approval from regulators in the US, Canada and China and shareholders of Nexen and CNOOC, before the end of this year.

On Thursday, the Canadian government confirmed that it had received a formal application from CNOOC for approval of its proposed acquisition of Calgary-based Nexen, an upstream oil and gas company.

The takeover offer, which was 62 per cent above Nexen's share price when it was unveiled in late July, has been endorsed by the Canadian company's board.

Citigroup, CNOOC's adviser on the deal, is helping the mainland company organise a group of international banks for a big syndicated loan, which could be worth about US$5 billion in total. CNOOC will raise US5 billion in bonds, and the balance to pay for Nexen will come from reserves.

Analysts have said that given CNOOC had about US$15 billion cash on its books at the start of this year, the company had no need to raise funds.

"Of course, you don't want to spend every coin you own, and you may want to keep some money for other deals," one of the people said, referring to CNOOC's interest in making other acquisitions once the Nexen deal is completed.

Late last month, when CNOOC announced its first-half results, chief financial officer Zhong Hua said CNOOC would consider various financing options to fund the deal, although it had enough cash to complete the deal on its own. He declined to elaborate then how CNOOC would seek additional capital.

Several American and European banks that hope to join the syndicated loan group were expected to meet in the coming weeks to work out details for the loan arrangement, said the people who declined to be identified because the discussions remain private.

Under regulatory rules regarding approval for major foreign investments, the Canadian government has 45 days to review the proposed deal but can add an additional 30 days if needed. Analysts expect CNOOC to receive an answer by November.

Before CNOOC submitted its deal application, the US Securities and Exchange Commission (SEC) already had the proposed transaction in its crosshairs.

In late July, the SEC said traders at a company named Well Advantage made more than US$7 million in illegal profits because they had prior knowledge of the proposed CNOOC-Nexen deal.

Well Advantage is wholly owned by Zhang Zhirong, one of the richest men on the mainland, who was known to have good business ties with CNOOC.

Additional reporting by Eric Ng