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SAN LEON ENERGY PLC: THE INVESTMENT CASE

San Leon unveils premium funding for Nigeria deal

San Leon is issuing new shares at 45p which is a 54% premium to the last price before trading was suspended in January.
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INVESTMENT OVERVIEW: SLE The Big Picture
The transformational deal is finally drawing to a close

San Leon Energy Plc (LON:SLE) marked a 90% rise in Friday’s early deals as the suspension that had frozen trading for the first eight months of 2016 was lifted.

The company, which is now closing its transactions to acquire material interests in a Nigerian oil field, this morning confirmed the details of a premium price share placing to raise £170.3mln (US$221.4mln).

It is issuing new shares at a price of 45p, a 54% premium to San Leon’s last price before trading was suspended in January.

The placing is being led by Toscafund, already a major investor in San Leon, which was an influential player in the Nigerian transaction (it initially put up loans which effectively funded the acquisition of Mart Resources by its Nigerian partner Midwestern).

Toscafund prior to the transactions had a 39.64% shareholding in San Leon, and it will subsequently own 54.41% of the company.

San Leon will return cash to Toscafund in short order as it is using some of the new funds to acquire the aforementioned loan notes from the investment group.

Crucially, it will secure an initial 9.72% indirect economic interest in OML 18, which with output of around 50,000 barrels of oil per day is described as a world class asset. It is expected that operations in Nigeria will be expanded to lift production further.

Oisin Fanning, San Leon executive chairman, in a statement said: “This is a transformational transaction representing the progress that we have made in delivering against our strategy of securing production and near-term operational cash flow.”

Fanning highlighted that San Leon is now expected to benefit from three new sources of cash flow – dividends derived from OML 18 oil sales, loan repayments and income from rig and workover services that it anticipates providing to the Nigerian operation.

He added: “We believe that the OML 18 Production Arrangement represents a huge opportunity for the Company and its shareholders, providing a platform for significant growth and the creation of shareholder value.”

San Leon’s interest in OML 18 is held via a special purpose vehicle, incorporated in Mauritania, that will be 40% owned by the AIM quoted company.

The share placing has been arranged by Brandon Hill Capital, SP Angel and Whitman Howard. Toscafund is purchasing 216.5mln new shares, taking its total shareholding up to a maximum of 241mln share or 54.41% of the company.

The remainder of the new equity is being taken up by institutional and other investors.

Some US$127mln of the cash raised in the share placing will be used to acquire loans from Toscafund, and a further US$57.5mln will be released in return for a further issue of loan notes.

San Leon will pay US$17.7mln to its current creditors  and US$7.1mln will repay the AIM company’s outstanding loans.

The remaining US$4.3mln will be used for general working capital, leaving San Leon with what it expects will be sufficient funds for at least twelve months.

Going forward San Leon intends to pay out dividends to shareholders, 50% of free cash flow from OML 18, over a five year period (starting once it starts generating returns from the new venture).

It noted that tax will only be payable on interest payments received for the loan notes, whereas no incremental tax will be payable on dividend income from the Mauritania incorporated holdings company.

It is anticipated that cash payouts will be made by San Leon on a bi-annual basis, with the maiden dividend expected to be announced in the group’s financial results for the year ending December 31 2016.

San Leon also noted that it intends to carry out a capital restructuring as part of the new arrangements.

Shareholders will now be required to approve the transactions, at an EGM in Dublin on September 20, and assuming all goes to plan it is anticipated that the new shares will be admitted to AIM on September 21.

Shares rose 72% to 50p.

 

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