STO 0.65% $7.75 santos limited

Macquarie said in a note that is not enough and Santos needs to...

  1. 1,368 Posts.
    Macquarie said in a note that is not enough and Santos needs to raise $US3.5 billion in capital to protect its credit rating.

    The bank told clients it failed to see how Santos could manage cost cuts deep enough to protect its rating, while the oil price would have to average $US72 a barrel to meet S&P’s targets.

    "Cost cutting aside, a raising of US$3.5b ($4.6b) would be necessary to repay Santos's subordinated note and ECA [export credit agency] facility to achieve an funds-from-operations-to-debt ratio within S&P's range," the analysts told clients.

    "Due to the size of this raising, we are cautious of how the market would react only 18 to 24 months after Santos raised $3 billion.

    "However, the raising could be justified as new management clean the decks in one large hit, giving the company a clean slate."

    Santos has a €1 billion subordinated note which it can repay from September 2017, along with a $US1.7 billion export credit facility which may also need to be repaid to meet S&P's ratings requirements.

    Macquarie reckons an easy way would be to raise more capital by selling its 13.5% stake in PNG LNG Ltd where Exxon mobil and Oil Search would have prior rights and be interested buyers.

    Macquarie said a PNG LNG sale could raise $US2.7 billion.

    "Though it would remove much of the company's future FCF [free cash flow], we believe the sale of one of STO's key assets, PNG LNG, could solve the balance sheet issues facing the company," the analysts said.
    Santos let that note go through to the keeper.

    http://www.*********.com.au/*********.asp?a=AV&ai=41071
 
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