China Petrochemical Corporation (Sinopec) has agreed to invest $7.1 billion in the upstream Brazil subsidiary of Spanish oil company Repsol.
Repsol is one of the largest independent upstream operators in Brazil and was the country’s third-largest oil producer in 2009. It is the largest foreign owner of exploratory blocks in Brazil. Analysts commented that part of the value in Repsol Brazil lies in its offshore subsalt area where oil is found in very deep water thus development is costly.
Repsol Brazil is currently wholly owned by Repsol. Sinopec will be issued new shares in Repsol Brazil so that it will finally have a shareholding of 40%. The pre-money valuation agreed between Sinopec and Repsol is $10.7 billion so the joint venture which is being created will have a value of $17.8 billion.
The money will allow Repsol Brazil to fully develop its current projects, which include some large exploratory discoveries. The agreement between Repsol and Sinopec, which is China’s largest refiner and the parent of Hong Kong-listed China Petroleum & Chemical Corp (Sinopec Corp), involves the two firms collaborating to develop Repsol’s existing portfolio of projects in Brazil but allows both companies to pursue other projects independently as well.
“The deal is a good reflection of the value created by the investment of technical, human and material means by Repsol in exploration, particularly in Brazil’s pre-salt offshore in the last few years,” said Repsol chairman Antonio Brufau in a written statement. “We are very pleased to share the development of Repsol’s Brazilian subsidiary with an internationally renowned and experienced partner as is Sinopec.”
Brufau may have found the perfect solution to his funding needs for Repsol Brazil, for which he had also contemplated an initial public offering. Repsol maintains the controlling interest and management of the Brazilian subsidiary through the deal with Sinopec, while finding itself a partner that has deep pockets to help fund costly exploration.
Sinopec becomes the third Chinese state-owned enterprise this year to make an investment in Latin America. Cnooc purchased a stake in Argentina’s Bridas Energy in March for $3.1 billion and in May Sinochem bought 40% in a Brazilian oilfield from Statoil. Specialists have been predicting that China’s quest to secure supplies of natural resources will continue to drive deals and Latin America, where Chinese capital is welcome, is an obvious target destination.
The acquisition is the second-largest overseas purchase by a Chinese company. Sinopec last year shelled out $9 billion to acquire Geneva-based Addax Petroleum Corporation, an international oil and gas exploration and production company with a strategic focus on West Africa and the Middle East.
Toronto-based Scotia Capital, the investment banking division of Bank of Nova Scotia, Canada's third-largest lender, advised Sinopec on the deal and was the only investment bank to secure a mandate on one of the year’s largest Asian M&A deals.
Like many other Chinese SOEs Sinopec has worked with a number of investment banks on its cross-border deals, based largely on which adviser brings to the table an exciting deal opportunity. It was advised by Deutsche on buying a 9.03% equity interest in ConocoPhillips oil sands project Syncrude for $4.65 billion. Cnooc and Sinopec appointed Credit Suisse to advise them last year on the acquisition of a 20% stake in an Angolan oil field from Marathon Oil Corporation for $1.3 billion.
