Santos today announced a capital management strategy comprising the following key initiatives:
- an off-market share buy-back tender of approximately $300 million;
- a 10% increase in the interim dividend to 22 cents per share; and
- the repayment of certain debt facilities.
Santos has also announced that the Dividend Reinvestment Plan (DRP) will be in operation for the interim 2008 dividend. The DRP will be fully underwritten with respect to the interim 2008 dividend as well as the following two dividends.
“These initiatives are consistent with Santos’ ongoing commitment to efficient capital management, and reflect the strength of the Company’s financial position” said Santos’ Chairman, Mr Stephen Gerlach.
“The off-market buy-back will allow Santos to immediately distribute to shareholders some of the proceeds resulting from the Gladstone LNG joint venture with PETRONAS, and will reduce the number of shares on issue. The Directors have concluded that the buy-back is the most effective mechanism to achieve these objectives. The final size of the buy-back will depend upon shareholder demand and market conditions.”
“The 10% increase in the interim dividend reflects Santos’ continuing sound operational performance and positive outlook.”
“At the same time, underwriting the Dividend Reinvestment Plan maintains the Company’s capacity to fund its growth strategy. The need for any further equity capital to support the Gladstone LNG project will be assessed during the Front End Engineering Design (FEED) process.”
“Based on the current share price and the expectation that shares will be repurchased under the off-market buy-back at a discount, the suite of capital management initiatives is expected to have a positive impact on earnings per share.”
“The Santos Board believes that the proposed off-market buy-back will not affect the capacity of Santos to pay fully franked dividends for the foreseeable future.”
The buy-back will be funded from existing cash holdings, which have increased as a result of the selection of PETRONAS as a 40% participant in the Gladstone LNG project.
Details of the off-market share buy-back
The buy-back will involve a tender process, under which eligible shareholders will be invited to offer to sell their shares to Santos at discounts from 8 per cent to 14 per cent inclusive (at 1 per cent intervals) to the Market Price and/or as a Final Price Tender . Santos will determine the final buy-back price based on the largest discount in the tender range that enables it to repurchase the required amount of capital ($300 million).
It is expected that ASX and Australian Securities and Investment Commission (ASIC) regulatory approvals required for the Buy-Back will be in place prior to the opening of the tender period.
The Australian Taxation Office (ATO) has provided preliminary confirmation that for Australian taxation purposes the buy-back price will comprise a capital component of $2.98 per share, with the remainder deemed a fully franked dividend.
For the purposes of capital gains tax calculations, the deemed capital proceeds that shareholders will receive on disposal of their shares under the buy-back will be $2.98 per share plus an amount equal to the excess of the Tax Value over the buy-back price. Santos does not intend to buy back shares at a price that exceeds the Tax Value.
For some of Santos’ shareholders, depending on their individual circumstances, the after-tax proceeds from participating in the buy-back may be greater than if those shareholders had sold their shares on-market. Shareholders should seek their own professional advice if they are in any doubt as to whether it is suitable for them to participate.
The terms and conditions of the buy-back will be set out in a booklet to be mailed to eligible shareholders by Friday, 12 September 2008.
Excluded foreign persons, including any person who is (or who is acting on behalf of or for the account of a person who is) in the United States or who is a US Person within the meaning of Regulation S under the Securities Exchange Act of 1933 or a resident of Canada, will not be eligible to participate, directly or indirectly, in the buy-back.
In addition, ADRs, restricted employee shares and shares issued under the Santos Dividend Reinvestment Plan in respect of the 2008 interim dividend cannot be tendered into the buy-back.
UBS is acting as financial advisor to Santos in relation to the off-market buy-back.