Australia/New Zealand Equity Issue

IFR Asia Awards 2017
3 min read
Fiona Lau

Royal Dutch Shell’s sale of its A$3.5bn (US$2.7bn) stake in Woodside Petroleum in November was the standout deal of the year in Australia’s equity capital markets, and the first big block trade under new rules that ruled out a trading halt.

Capitalising on a rally in oil prices, Shell Energy Holdings Australia called for competitive bids from six banks shortly after market closed on November 13. It was initially looking to sell only part of its remaining 13.3% stake in Woodside, Australia’s largest independent oil and gas company.

Joint underwriters Morgan Stanley and UBS won the bid with a tight discount of 3.5% to the November 13 close of A$32.24, and launched the block trade with an initial target of A$2.2bn.

The two banks needed to have absolute confidence in their market read and their ability to place the stock. While Shell had long been expected to sell more of its Woodside stake, following earlier disposals in 2010 and 2014, there was no market sounding, and the banks were on risk at an aggressive price.

The discount is the tightest ever for any Australian block raising more than US$2bn. US energy giant Chevron’s A$4.7bn sell-down in Caltex Australia in March 2015, the last jumbo block in the Australian market before the Woodside trade, cleared at a 7.6% discount.

A trading halt was also out of the question, under the Australian Securities Exchange’s new rules. In the past, an ASX-listed company could suspend trading for up to two days to allow a disposal by a major shareholder, but the exchange cancelled that option from March 31 to minimise trading interruptions.

That gave the leads only a matter of hours after the Australian market closed to clear the stock. The deal, however, went smoothly, helped by a rebound in Woodside’s stock price with crude prices at their highest since mid-2015.

Shell initially planned to sell 71.6m shares at A$31.10 each, but a glut of substantial orders from large long-only investors, including Australian industry superannuation funds and global sovereign wealth funds, allowed the vendor to sell its entire stake, offloading 111.8m Woodside shares.

The books were well covered with the participation of about 100 investors. Geographically, about 55% of the allocation went to Australia, 31% to Asia and 7% each to Europe and the US.

Shares in Woodside held up well the following day, closing above the sale price at A$31.20 on November 14.

The deal is part of a US$30bn global asset sale plan for Shell, which will use the proceeds to reduce its debt.

It also reversed a 20% decline in Australian equity issuance in 2017, taking total underwriting volumes during IFR’s review period to within 5% of the previous 12 months.

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