Glencore backs $1bn acquisition of Chevron South Africa by black-owned consortium

Glencore backs $1bn acquisition of Chevron South Africa by black-owned consortium

28th September 2018

By: Terence Creamer
Creamer Media Editor

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Black economic empowerment (BEE) consortium Off The Shelf Investments (OTS) confirmed on Friday that it had acquired Chevron South Africa (CSA) in a deal valued at $1-billion and financed by its technical and financial adviser, Glencore.

CSA, which owns the Chevron refinery in Cape Town and the Caltex brand, has changed its name to Astron Energy. The new owners have six-years to transition away from the Caltex retail brand and the new branding will be finalised in the coming months, in consultation with stakeholders.

Chairperson Mashudu Ramano tells Engineering News Online that the “milestone” transaction was concluded in London, the UK, on September 27 and that the new board and executive team will be unveiled in the coming week.

“This is a milestone transaction which has resulted in the creation of a standalone, black-owned energy company that will be managed by South African citizens,” Ramano says.

Glencore’s funding contribution expanded from the 33% initially envisaged after a South African funder withdrew from the transaction. “We, therefore, wish to thank and acknowledge our technical and financial adviser, Glencore, for their assistance and support in concluding this landmark transaction.”

Glencore CEO Ivan Glasenberg said earlier this year that an investment in the downstream oil business would provide “the short for the trading business“.

He noted that the oil division also saw a benefit on the trading side in having outlets in various countries, including South Africa, Mexico and Brazil.

In June, Glencore Energy signed an agreement to acquire 78% of Ale Combustíveis, Brazil’s fourth-largest fuel distributor, which has a network of 1 500 stations in 22 states and about 260 convenience stores. This followed investment in the Mexican downstream sector through G500.

On the extent to which Glencore planned to go downstream globally, Glasenberg said: “I think we’ve first got to consolidate these businesses, see that we can run them well, see how much benefit the downstream part of the trading business offers, and then we’ll look further. But at the moment we’re happy with the areas we’re in, we want to grow in these areas.”

Ramano stresses that OTS, not Glencore, is the acquirer of the additional 75% in CSA. The shareholders in OTS are African Legend Investments, Lithemba Investments, the Ditikeni Investment Company and Santaco Petroleum.

However, he did not discount the possibility of a portion of the Glencore loan being converted to equity in future. However, he said it was premature to comment on the final ownership structure, save to say that it would be in line with South African legislation and the demands of the Liquid Fuels Charter.

As a result of the transaction, OTS’ stake in CSA has increased from the 23% held for the past 15 years to 98%, with employees holding the residual 2% of the shares. Its stake in Chevron Botswana has risen to 100%.

The deal arose following the triggering of OTS’ pre-emptive rights in CSA after China’s Sinopec moved, last year, to purchase a company that Chevron had been seeking to sell since 2016.

Economic Development Minister Ebrahim Patel subsequently concluded a framework agreement with the potential acquirers placing public-interest conditions on the deal, in line with South Africa’s competition legislation.

One of the conditions includes a commitment by the acquirer to invest some R6-billion into the Cape Town refinery, which has a crude oil input capacity of 110 000 bbl/day.

The other conditions relate to the preservation of black shareholding in the company, the retention of jobs and employee benefits, the establishment of a development fund to support small and black-owned businesses, the continuation of CSA’s branded marketer programme, and a commitment to funding the rebranding costs.

The conditions where embedded into the Competition Tribunal’s September 13 approval for the OTS merger.

Ramano says he is confident that the management team has the requisite depth of experience to ensure a smooth transition of the business and management of the integrated supply chain including the Cape Town refinery.

Besides continuing to deliver quality fuels and lubricants, he says it will be critical to restore certainty among the group’s 1 000 direct employees, as well as its contractors and partners.