Energy giant Viva Energy Group Ltd (ASX: VEA) has seen its share price rise 10% in early trading after announcing a major asset sale.
What is Viva Energy doing?
Viva Energy is selling its 35.5% holding of Viva Energy Reit Ltd (ASX: VVR) through a fully underwritten block trade and a sale to each of Charter Hall Group (ASX: CHC) and Charter Hall Long WALE REIT (ASX: CLW).
The 25.5% interest in Viva Energy Reit was sold through the underwritten trade, and a 5% interest was sold to each of Charter Hall Group and Charter Hall Long WALE REIT.
How much is Viva Energy getting for the sale?
It will receive $2.66 for each share it's selling, being a total of $734.3 million. This translates to an estimated $112.9 million pre-tax profit on the sales for Viva Energy.
What now?
Viva Energy intends to keep a strong relationship with Viva Energy REIT as the major tenant and the lease arrangements provide long-term security of tenure.
Viva Energy's balance sheet has net debt of $137.4 million, so the share sale will allow the company to undertake capital management activities, namely a share buy-back. And it will also mean no more distributions from the REIT, in 2019 this amounted to $39.2 million.
Viva Energy, through its subsidiary VER Manager Pty Ltd, will remain as the manager of the REIT with those services being provided on a cost-recovery basis. However, Viva Energy said it intends to work constructively with the independent directors of the REIT with respect to future management arrangements under the new ownership structure. The lease terms are unchanged.
Anything from Viva Energy REIT's side?
The REIT said that its debt facilities contain a review event if Viva Energy's holding falls below 20%, which will trigger this review event. The REIT and its existing lenders have a period of 60 days to consult about the continuation of the existing facilities, which may include alterations. If an agreement isn't reached within those 60 days, the lenders may seek repayment no earlier than a further 120 days. The REIT has commenced consultation with its lenders.
In early reaction the Viva Energy REIT share price is down 2.5% to $2.69
