Petronas Makes $190 Million Offer for Energy Africa

Energy Africa has rebuffed an offer to minority shareholders from Petronas, but the Malaysian group nevertheless went ahead and raised its stake to 65.3%. The international are of Petronas said it had bought 8.8 million shares in Energy Africa at R43.75 each, the price it offered in a surprise bid late on Thursday. Energy Africa closed Friday trade 25% up at R43.70, after more than nine million shares changed hands. Minority shareholders now own just under 35%. Petronas said the offer, which was above Energy Africa's previous high of R43.05, was final and would not be increased. It said Energy Africa lacked the scale and diversity to exploit both its exploration and development activities fully and preserve an attractive risk-return profile. "This, coupled with recent unsuccessful drilling results, has increased the uncertainty surrounding the company's prospects," it said.

Although Petronas said it had had talks with Energy Africa's directors and management about liquidity, scale and funding requirements, Energy Africa said the bid came as a shock. It complained that it should have been approached by Petronas first, and the offer was inadequate: "Energy Africa believes that the offer does not fully value the company." Energy Africa MD Rhidwaan Gasant said talks between the two had been about plans to fund the group's future. "There was no discussion on an offer." He declined to put a value on his company. "The board needs to get together and review the work we've done first," he said. Gasant blamed the firm's low share price on its limited free float, but pointed to a note from its stockbroker Merrill Lynch, which said the offer fell short of its conservative net asset value estimate of R55 a share.

Beth Mandel, of Petronas International's financial adviser Morgan Stanley, said the offer was "very consistent" with many brokers' price targets and the buy would be funded with internal resources. Sanlam Investment Management analyst Stephen Roelofse said the offer came as a "big surprise" to the market, but he expected most shareholders would accept it. "It is very unlikely it will outperform the market in the next year, unless we have a big spike in the oil price," Roelofse said of the share, which has outperformed other South African commodity stocks since 1999. "Exploration companies always have blue-sky potential, but you want to unlock value at some stage," Roelofse added.

Before the bid, Petronas International's 80%-owned subsidiary, Engen, held 56.7% of Energy Africa. But Friday's buys by Petronas International pushed its control of the company up to 65.3%. In the year to end-March, Energy Africa had turnover of $144 million and operating profit of $34.4 million.

The group has interests in Egypt, Libya, Morocco, Mauritania, Namibia, Tanzania, Uganda, Equatorial Guinea, Gabon, Congo and the United Kingdom. The Malaysian national oil company became one of South Africa's biggest foreign investors when it bought Engen in 1998. It has since invested about R5bn in the group. Energy Africa told shareholders to be cautious in their dealings and said it would advise investors on its views on the offer once a formal bid had been issued.