Sinopec Buys Into Brazil Via Repsol

Spain’s Repsol has sold a 40% stake in its Brazil unit to Chinese oil firm Sinopec for $7.1bn, a high price in line with recent comparables. Repsol had been planning to float the stake, but opted for a strategic sale instead. Adam Waterous, head of global investment banking at Sinopec advisor Scotia Waterous, says the deal provides significant benefit over an IPO, including access to Sinopec’s technical and crude marketing expertise, as well ties to an exploration major. “With an IPO, you’re really only getting the cash,” Waterous tells LatinFinance. The $7.1bn price is seen in line with what Repsol would have achieved in the stock market, say analysts. Repsol’s valuation represents around a 66% premium to the value analysts had assigned earlier in the year. The Repsol Brazil assets have not yet begun producing, and may not for another 2-3 years. Waterous rejects suggestions that the premium is too high, pointing out that the buyer gets minority stakes in Petrobras-managed platforms. A banker away from the deal agrees that the price is not surprising given recent comparables, such as Sinochem’s purchase of a 40% stake in Peregrino from Norway’s StatOil for $3.07bn. Even non-performing assets are achieving healthy multiples thanks to scarcity of Brazil resources, while similar plays in Argentine incur political risk. Additional capex funding will also likely be needed in the future, the banker says. Sinopec is controlled by the Chinese government, which has been aggressive in its pursuit of LatAm oil this year. Sinopec was advised by Scotia Waterous and Vinson Elkins, while Respol was advised by Latham Watkins. The transaction should make Repsol’s plans for a Brazil asset spinoff – expected at $4bn equivalent – unnecessary. It would have been the largest this year in Brazil by a non-government controlled entity. BAML, Credit Suisse, Itau and Santander won the mandate to lead the deal, for which Repsol filed a preliminary prospectus in August. Sinopec is also bidding