Petronas International Corporation Limited (PICL), a wholly-owned subsidiary of Malaysia’s state oil company Petroliam Nasional Berhad (“Petronas”), has signed definitive agreements with South Africa’s listed energy and chemical company, Sasol Limited (“Sasol”), Worldwide African Investment Holdings (Pty) Limited (“Worldwide’) (through its wholly owned subsidiary Afric Energy Resources (Pty) Limited (“AER”)) and a Sasol black economic empowerment (“BEE”) entity, Tshwarisano LFB Investment (Pty) Limited (“Tshwarisano”) to combine Sasol’s Liquid Fuels Business (“Sasol LFB”) and Engen Limited and its subsidiaries (“Engen”) in a new liquid fuels joint venture, Uhambo Oil Limited (“Uhambo”). Uhambo means “a journey” in both IsiXhosa and IsiZulu.Transaction Details
Sasol, Petronas, AER, Tshwarisano and Engen have signed a share-for-share exchange agreement, which regulates the steps involved in forming this joint venture. This agreement has been concluded in addition to a shareholders’ agreement regulating the relationship between the joint venture’s shareholders. A Component Supply Agreement (“CSA”) between Sasol Synfuels (Pty) Limited (“Sasol Synfuels”, a Sasol subsidiary) and Sasol Oil (Pty) Limited (“Sasol Oil”) has been updated and a brand licence agreement regulating the use of Sasol brands has also been agreed between Sasol, Uhambo and PICL.
In addition, an intellectual property agreement regulating the terms and conditions of the transfer of technology and the right to use intellectual property currently held by Sasol Technology (“Sastech”, a subsidiary of Sasol) has also been agreed between Sasol Synfuels, Sastech, Uhambo and PICL.
Sasol and Petronas have emphasised that the transaction’s completion is subject primarily to the approval of competition authorities in South Africa and the European Union. It is expected that these conditions will be fulfilled during the first half of 2005.
Uhambo Oil Limited
Subject to official sanctioning it is expected that Uhambo will be the leading South African liquid fuels refining, marketing and distribution business, with a capacity to produce more than 13-million cubic metres of petrol, diesel and kerosene a year.
Uhambo will comprise the Enref oil refinery at Durban, Sasol’s share in the Natref crude oil refinery at Sasolburg in the northern Free State and about 1 600 retail service stations in South Africa, as well as liquid fuel operations in 13 other sub-Saharan African countries. It will also include liquid fuels components produced at the blending facility at Secunda from synthetic fuel (synfuel) components. These synfuel components will be procured from Sasol Synfuels through the CSA.
It is estimated that the joint venture will have a market share of about 33% in South Africa for white petroleum products â€“ mostly gasoline, kerosene, jet fuel and diesel. Uhambo will be looking to sell about 60% of its output directly into its own marketing network and a minimum of 25% to other oil companies with the remaining volumes initially destined for the export market. Uhambo will be the leading liquid fuels retail marketing business in South Africa with a presence in all nine provinces.
The retail network in South Africa will include more than 1 250 Engen service stations and about 350 Sasol, Exel and Zenex service stations, including Engen Quickshop and Sasol Delight convenience shops. After closing, the shareholders have agreed to fast track the roll out of Sasol-branded convenience centres around South Africa in order to achieve an overall number of 250 as soon as possible.
The joint venture’s head office will be located in Cape Town. Uhambo will maintain regional service offices, fuel depots and production facilities at Cape Town, Durban, Sasolburg, Secunda and Johannesburg.
Board and Management
Tan Sri Dato Sri Mohd Hassan Marican, will be appointed as Non-Executive Chairman of Uhambo. The position of Chief Executive Officer designate has been offered to Mr Jock McKenzie as of January 2005. These appointments will be confirmed upon the fulfilment of the conditions precedent to the transaction and upon approval of the Board of Uhambo. Non-Executive Directors and the senior management team will be appointed in due course.
Tan Sri Dato Sri Mohd Hassan Marican is the President and Chief Executive Officer of Petronas and is currently Nonâ€“Executive Chairman of Engen. Mr Jock McKenzie has substantial experience in the local and international oil industry.
Transaction rationale and vision
Sasol and Petronas believe there is potential to attain significant synergies by forming the joint venture. The envisaged synergies are expected to materialise mainly in the areas of manufacturing, supply and trading, marketing, the international business and corporate services.
Uhambo will be better balanced between refining and marketing and have market leading brands.
The shareholders’ vision is the creation of a business which is competitive over the long-term, profitable and socially responsible and which is managed to maximise sustainable long-term economic returns, whilst having regard to the long-term interests of all stakeholders.
- be managed as a leading world class business;
- enhance value by targeting opportunities for the attainment of a world class cost structure and by optimising its capital expenditure;
- realise synergies arising from the combination; and
- support the BEE policies of the Government of South Africa and shall be a leader in the furtherance of the principles of the Liquid Fuels Charter.
Uhambo will also represent the most significant BEE investment in the liquid fuels industry to date. Worldwide, which currently owns 20% of Engen, and Tshwarisano, will each become 12,5% shareholders in the joint venture at its inception.
Worldwide was founded in 1994 as a black-owned and managed investment holding company. Over the last decade, Worldwide’s investments have primarily been in the oil industry, with complementary portfolio investments being undertaken in the financial services, telecommunications and information technology sectors.
The company’s involvement in the oil industry predates the South African Liquid Fuels Charter of 2000 when Worldwide invested in Afric Oil in 1995 and followed with the acquisition of a 51% stake in Zenex in 1997. The 20% shareholding in Engen is the company’s biggest investment. Worldwide’s oil industry interests are held through its wholly owned subsidiary AER.
Dr Penuell Maduna, the former South African Cabinet Minister, is leading a group of potential BEE investors. He is responsible for facilitating and structuring a broad-based and representative BEE consortium associated with the Sasol LFB that will participate in the joint venture through the Sasol BEE legal entity, Tshwarisano. While it is expected that the Maduna group will take an important position in this transaction, Tshwarisano will also involve previous shareholders of Exel who currently hold shares in Sasol Oil, as well as Batho Trust (a broad-based empowerment trust) and other broad-based BEE interests, including women’s groups. The former Exel shareholders include a trust with rural women as beneficiaries, a pension and provident fund with members who are pump attendants, service station owners and an eminent women’s group.
In addition to achieving the equity elements of the Charter, the Parties intend that key areas of BEE focus will be Uhambo’s employees, dealers/franchisees and third party marketers, the wider community, business partners and procurement activities. Both Sasol and Petronas have confirmed their willingness to lend their support to the training and capacity building programme by, for example, making available their bursary and training schemes in South Africa and Malaysia respectively.
The joint venture combining Sasol LFB and Engen is a partnership of equals. Petronas which holds 80% of Engen through its wholly owned subsidiary PICL will sell 5% of its shareholding to Worldwide, increasing Worldwide’s shareholding to 25%. Prior to closing, Sasol will transfer an additional 23 percent shareholding in Sasol Oil to Tshwarisano. At closing of the transaction Sasol and Tshwarisano will transfer their shares (75 percent and 25 percent respectively) in Sasol Oil to Engen in exchange for the issue of shares in Engen. Upon closing of the transaction, Engen Limited will be renamed Uhambo Oil Limited.
This will result in Sasol and Petronas each holding a 37.5% shareholding and Worldwide and Tshwarisano each holding 12.5% in Uhambo. AER and Tshwarisano, combined, will own 25% of the joint venture (in line with the requirements of South Africa’s Liquid Fuels Charter) and have the associated rights and obligations as set out in the shareholders’ agreement.
Pro Forma Financial Information
For the 2004 financial year, the joint venture would have recorded pro forma sales of R33.0-billion and pro forma earnings of R1.2-billion, based on the unpublished pro-forma results of Engen for the year ended 31 March 2004 and that of Sasol LFB for the year ended 30 June 2004. It is anticipated that the transaction will be marginally earnings enhancing for Sasol in the 2005 financial year to 30 June 2005, with improvements anticipated thereafter as synergies are realised and up-front integration costs have been expensed.
The exchange rate prevailing at the close of business on 29 October 2004 was R6.16 : US$1
Tan Sri Dato Sri Mohd Hassan Marican, Petronas’ president and chief executive officer, and the Chairman designate of Uhambo, said:
“This joint venture is a positive and exciting development for Petronas. It demonstrates our continued commitment to provide a meaningful contribution to the growth of the South African liquid fuels business and the overall development of South Africa, in line with the aspirations of the South African Government. We expect that this partnership with Sasol and our BEE partners will result in a stronger and more efficient entity which will become a more competitive force in the sub-Saharan African market.”
Commenting on the formation of the joint venture, Pieter Cox, Sasol’s deputy chairman and chief executive, said: “The transaction forms an integral part of our expressed growth strategy in the Southern African liquid fuels market. We are looking forward to a long and successful partnership with Petronas and our BEE Partners. We are excited by the opportunities that the joint venture will bring to our employees, our shareholders and our companies, along with the wider South African economy.”
Zellah Fuphe, the Managing Director of Worldwide, said: “Worldwide is pleased to be part of Uhambo. This is a culmination of a vision that started with our company’s first investment, Afric Oil, in 1995. Since then, we have increased our participation in the oil industry through investments in Zenex and Engen. With the industry experience Worldwide has gained over the past decade, we believe we are well positioned to make a meaningful contribution and add value to our partners in Uhambo.”
Dr Peneull Maduna said: “Excellent progress is being made in establishing a broad based empowerment grouping that will take up a 12.5% share through Tshwarisano. This entity will include former Exel shareholders, as well as women’s and other broad based groups. We look forward to a long and fruitful relationship with the other shareholders.”
Minister of Minerals and Energy, Minister Phumzile Mlambo-Ngcuka, reacting on the proposed merger between Sasol and Engen, said: “I am very pleased with the proposed joint venture between these two key players in the South Africa petroleum sector and indeed very much pleased that this will help in the achievement of broad-based black economic empowerment, especially of women, in the liquid fuels sector.” The Minister expressed appreciation of the current developments and pace of negotiations towards this joint venture.