now loading...
Wealth Asia Connect Middle East Treasury & Capital Markets Europe ESG Forum TechTalk
Asia Connect
Sinopec pushed out of the picture as Glencore announces Chevron South Africa acquisition
Minority shareholders exercise pre-emptive rights to derail Sinopec refinery and petrol stations acquisition in South Africa and Botswana
Michael Marray 18 Oct 2017

SWISS commodities trader Glencore has signed a deal to acquire Chevron’s assets in South Africa and Botswana, in a move which has derailed Sinopec's previously agreed deal. It is a blow to the ruling African National Congress (ANC) as the deal was seen to advance Chinese relations and BRICS integration following the Xiamen BRICS Summit last month, which President Jacob Zuma personally attended.

Chevron initiated a bidding process for the assets, which include a refinery in Cape Town plus 800 petrol stations. In March this year China Petroleum & Chemical Corp (Sinopec) emerged as the winning bidder. The takeover was greeted by the local business community as a valuable tie-up with a global oil major with the resources to upgrade the Chevron facilities.

However, the Chevron South Africa shareholding structure made it possible for the agreement to be blocked. After the end of the apartheid era, a programme of Black Economic Empowerment (BEE) partners was put in place, as one of the pillars of economic and societal transformation. This included taking stakes in large corporations. As part of this process, Chevron South Africa came to be 25% owned by BEE partners.

This shareholder group, under the name Off The Shelf, had the first right of refusal on any future sale of shares by Chevron, and has chosen to exercise its pre-emptive rights for the 75% stake, and then sell this on to Glencore. Glencore had been one of the original bidders, in addition to players such as Swiss-based oil trader Gunvor, but lost out to Sinopec.

On October 6, Glencore announced that it has entered into an agreement with Off The Shelf Investments Fifty Six (RF) Proprietary Limited (OTS) to acquire from OTS (i) a 75% stake in Chevron South Africa Proprietary Limited and certain related interests and (ii) the entire issued share capital of Chevron Botswana Proprietary Limited following closing of OTS’s exercise of its pre-emptive right to acquire the assets from the Chevron group.

During its acquisition process Glencore will be supporting OTS as their technical and financial partner. The aggregate acquisition cost (subject to adjustment for debt and working capital at closing) is US$973 million. The assets comprise the interests of the Chevron group in its manufacturing, retail and industrial supply business in South Africa and Botswana. Glencore believes that the assets provide an attractive downstream opportunity for its oil business. The acquisition will include undertakings as to retention of the local management team and workforce. Chevron sells petrol under the Caltex brand at its 800 petrol stations. The Cape Town refinery has a capacity of 100,000 barrels a day.

The acquisition is payable in cash on closing, and will be funded from Glencore’s own cash resources. Glencore intends to manage its overall oil asset portfolio to ensure that, including this transaction, net additional capital investment is limited to less than US$500 million over the next 12 months, consistent with Glencore’s conservative financial framework targets. The transaction is conditional on the receipt of all necessary regulatory approvals by OTS and Glencore and is expected to close in mid-2018.

Seeing such a high-profile deal as the one signed with Sinopec fall through will be a blow to the ruling African National Congress. Glencore is a highly experienced player in Africa, but being owned by a Swiss commodities trading company is not viewed as bringing the same sort of strategic advantages as being part of a Chinese state owned global oil major.

South Africa is a member of BRICS (Brazil, Russia, India, China, South Africa) and the ruling ANC government has established a good relationship with China, and is trying to press ahead with more economic integration within the BRICS.

China has big ambitions across Africa, and China Development Bank approved over US$50 billion of loans to 43 African countries in the first half of 2017. In addition, the China-Africa Development Fund (CADF), China’s first private equity fund that focuses on investments in Africa, has committed to invest over US$4.4 billion in 36 African countries in the past 10 years since its establishment. It is expected to drive over US$20 billion of Chinese investment in Africa as one of the main platforms for Chinese investment in Africa.

The CADF funded by CDB officially came into operation in June 2007 as one of the eight policy measures on pragmatic cooperation between China and Africa proposed by China at the Beijing Summit of the Forum on China-Africa Cooperation in 2006. In December 2015, President Xi Jinping announced at the Johannesburg Summit of the Forum on China-Africa Cooperation that the CADF would be increased to US$10 billion. President Jacob Zuma attended the BRICS Summit in Xiamen in early September. Next year South Africa will take over the rotating Presidency of the BRICS.

Conversation
Kamal Dorabawila
Kamal Dorabawila
chief investment officer/sector lead, transport & logistics, Asia Pacific
International Finance Corporation
- JOINED THE EVENT -
8th Asia Sustainable Infrastructure Finance Leaders Dialogue
Leading the way in sustainable infrastructure
View Highlights
Conversation
Mildred Chua
Mildred Chua
managing director and group head of syndicated finance
DBS
- JOINED THE EVENT -
In-person roundtable
Finding opportunity amid volatility
View Highlights