San Diego-based Sempra Energy is thought to be negotiating with the Royal Bank of Scotland (RBS) to buy back RBS's 51% interest in the two firms' joint venture trading unit, RBS Sempra Commodities. Two sources in the financial and energy trading space told NGI Thursday that this would make sense for the U.S. energy holding company if it can get the right price.
The speculated price that at least three major suitors have been talking about is about $4 billion. RBS paid $1.7 billion for its majority interest in the commodities joint venture when it was formed in April 2008 (see NGI, April 7, 2008).
The Obama administration's proposal in January to limit banks' involvement in speculative trading sparked reports earlier this month that JPMorgan Chase had backed off as a potential suitor and raised anticipation that other two bidders -- Deutsche Bank and Australia-based Macquarie Group -- would rejoin the competition to acquire the trading unit.
Business reports have indicated that JPMorgan wanted to extend its past exclusive negotiations with RBS, but the bank is under increasing pressure from the European Union to sell its trading stake to shrink its worldwide presence in about two-thirds of the 54 nations in which it operates.
Sempra was contacted regarding the latest reports, but there was no comment. In recent weeks the holding company's spokespeople in San Diego have said the company would not comment on speculations about the trading business, a business in which Sempra intends to continue being a major player, said CEO Donald Felsinger last fall.
Sempra's investment-grade credit ratings will remain unaffected until there is a definitive deal, an analyst at Standard & Poor's Ratings Services (S&P) told NGI last Tuesday. The details of the trading deal are needed to determine its potential impact on Sempra's cash flow and other financial metrics before S&P would consider a revision of the energy holding company's rating.
As evidenced by the departure Jan. 29 of the joint venture trading operation's CEO, traders are leaving RBS Sempra, the S&P analyst said. "Obviously, personnel see the possibility of the asset maybe being sold and they are seeking to fortify their own careers, but there has been a lot of noise with RBS looking to sell its stake and Sempra maybe also selling its interest as well. There are a lot of rumors and noise, as I say, but nothing concrete has emerged from either side in terms of reaching any kind of firm, concrete agreement."
The fact that the joint venture trading operation under the deal Sempra struck with RBS provides a good portion of the California energy holding company's cash flows will be a key for rating analysts. The eventual impact on Sempra is still not clear, the S&P analyst said.
In separate news, analysts also are keeping a close eye on Sempra and others in the North American liquefied natural gas (LNG) business, given the global LNG market has been "very soft recently," an analyst said. There are minimal cargoes coming to the United States currently and still a "pretty wide price spread" among Europe, Asia and the United States. "There really hasn't been much positive in this sector of late."
What Sempra does have is take-or-pay contracts for large amounts at its two LNG terminals -- Energia Costa Azul in North Baja California in Mexico and Cameron along the Louisiana Gulf of Mexico coast -- and that remains a positive, the analyst said.
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