The Coming Rise Of “State-Sponsored M&A”
Further to the second-last item above, things may be about to get very interesting in natural resources acquisitions.
Because of desperate governments.
Opportunities In Special Situations With Evermore’s David Marcus
Let’s set the stage a little here.
As far back as the financial crisis of 2008, “vulture” investors in the resources sector started licking their chops. With the downturn in metals and energy prices prompting big investors to declare that critical assets were about to become available… at pennies on the dollar.
That spurred many big names in the resources business to raise millions or even billions in blind pools of capital — to then go out and swoop up unloved mines and oil fields, in unloved sectors. Witness former Xstrata chief Mick Davis raising $5.6 billion for his X2 Resources. Or former Chesapeake Energy head Aubrey McClendon getting $15 billion backing for his acquisition vehicle American Energy Partners (now defunct following McClendon’s death this past March).
But all that excitement over big buying opportunities has turned to doldrums, and then frustration over the last few years. As cashed-up buyers realized a hard truth about the resources sector — there simply aren’t a lot of high-quality assets being put up for sale.
Mick Davis’ X2 for example, has done exactly zero deals since raising its big cash horde starting in 2013. And the world-over the story has been the same.
The thing is, there are only so many good projects on the planet. And the management teams that own them know exactly how valuable they are — and in most cases, aren’t going to sell them unless circumstances get downright life-threatening.
So far, lower commodity prices haven’t quite pushed the private sector to that brink. Although there have been special cases like Newmont’s recent sale of its Indonesian gold-copper mines — where a combination of financial need and problems with local government came together to help peel off relatively high-quality mines into new hands.
But news this week underscores a potential new source of good projects outside the private sector — that may be on the verge of opening up to investors globally.
While lower commodities prices haven’t hammered loose many quality assets from the private sector, the downturn seems to be hitting state enterprises harder. Evidenced by Saudi Arabia saying in April it will sell an approximate 5% stake in national oil firm Saudi Aramco — in order to raise funds to buoy state coffers (with the sale estimated to be worth hundreds of billions of dollars).
This week’s revelation that Kuwait is thinking of opening up the oil field services sector to outside investment is another example of governments moving to monetize state assets. Which itself closely followed the Russian government’s sale of a 10.9% stake in diamond miner Alrosa — fetching nearly $820 million.
Governments thus seem a lot more willing to part with good assets right now. And that could be great news for all the vulture funds that have been circling the resources sector.
Recall that the world’s top copper miner, Chile’s state firm Codelco, said this month it’s in a “deep crisis” right now when it comes to finances. Which must certainly have some officials in the Chilean government thinking about selling mines or development projects in order to shore up funds.
Asian state-owned enterprises also hold a big slate of mining assets globally. And there’s a been a lot of news lately from places like Korea about constricting budgets for government mining companies. Which could see projects accumulated over the last several years start to come available for sale.
In oil and gas, the treasury of projects held by state firms is even greater. Think Pertamina in Indonesia, PTTEP in Thailand, Petrobras in Brazil, YPF in Argentina. Nigerian National Petroleum Corporation said in June that it owes $7 billion in unpaid cash calls to joint venture partners — which could prompt the firm to look at selling asset stakes in order to raise funds.
All of which suggests that project buyers may finally get what they’ve been looking for, from an unexpected source. Watch for more deals emerging in regards to state-owned assets — which could be company-makers for the right purchasers.