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How Citic oiled the wheels of Kazakh M&A
WHEN CITIC GROUP snapped up Nations Energy of Kazakhstan for $1.9 billion in December 2006, the deal was both a coup for the Chinese conglomerate and an indication of the increasingly frenzied attempts of foreign companies to grab assets in leading energy-producing countries.
Not only had resources-to-banking-to-construction conglomerate Citic beaten all of China’s leading oil and gas majors to land the Canadian-owned oil producer – in itself an eyebrow-raising event, but more intriguingly, the Beijing-based company’s all-cash bid was not the highest offer. Nations Energy’s shareholders were approached with several higher tenders but chose Citic because it was able to stump up the cash in a matter of days.
Citic’s competitors in the chase for Nations Energy reads like a who’s who of the world’s up-and-coming oil and gas players. Press reports at the time noted the number of visits made to the Kazakh capital, Astana, by senior officials at China National Petroleum Corporation (CNPC) and China National Offshore Oil Corporation (CNOOC). But in reality a host of foreign and domestic energy- and non-energy-related interests were lining up to buy the Canadian firm, stimulated by high oil prices, dwindling global energy reserves and the availability of an efficiently run private corporation headquartered in a leading energy-producing nation. Nations Energy, now renamed Citic Canada Petroleum, pumps out 45,000 barrels of oil a day at its Karazhanbas oil field in the Caspian Sea, which boasts proven oil reserves well in excess of 340 million barrels.
Three Russian energy majors – Gazprom, LukOil and Rosneft – were interested in Nations Energy, as were energy groups with close links to Dubai’s ruling Al Maktoum family. A trio of Kazakh interests, including Bank TuranAlem (BTA), the leading state-run oil and gas firm KazMunaiGas (KMG), and a local billionaire entrepreneur with close links to the energy ministry, also threw their hats into the ring. Two US energy firms, Chevron and Occidental Petroleum, also took an interest in the bidding process.
Hurried bids
Aware that the Kazakh authorities were keen to keep energy assets in local hands, in 2006 KMG hurriedly attempted to put together a bid that ultimately failed. Then BTA attempted a leveraged buyout – the first such major deal the bank had ever attempted. That also floundered, leaving the field open for foreign bidders.
In August 2006, Citic offered $1.9 billion for the Canadian firm, with the Chinese firm rushing to announce via its domestic news agency, Xinhua, that the deal had been completed.
Yet Citic was not the highest bidder – seven other energy interests tendered bids ranging from $1.98 billion to $2.5 billion, with the winning offer not being accepted, either by Citic’s political overseers in Beijing, by Kazakhstan’s energy ministry, or by Nations’ shareholders, until the last minute.