Engen nukes ‘years of uncertainty’ with major Vivo injection
Engen is combining its fuel stations outside of South Africa with Vivo Energy-owned Shell’s forecourt network in a deal that will improve its expansion prospects and management as the company emerges from a difficult year.
The deal has received support from Phuthuma Nhleko’s Phembani Group, a longtime shareholder in Engen, which sees lucrative growth in the downstream fuel market for the rest of Africa.
But Phembani CEO Kennedy Bungane has quashed speculation that the deal signals a potential exit of Engen’s majority owner Petronas, after talks to sell Engen to South African government-owned PetroSA collapsed in 2015.
“We are not aware of any plans by Petronas to sell their stake in Engen. If anything, Petronas, like ourselves, is committed to Engen,” Bungane said.
Earlier this year Phembani increased its stake in Engen to 26% from 20%. It has an appetite for a larger holding.
Engen’s transaction, announced earlier this week, sees Engen International Holdings, a subsidiary of Engen Limited, swap its shares for a stake in Vivo with a possible cash element.
Vivo Energy is a venture between Switzerland-based Vitol SA and Helios Investment Partners in Nigeria, and Shell.
Vivo gains 300 Engen stations
The combined business will result in Engen’s returns coming from nearly half the countries in Africa.
Bungane said: “We’ve not sold those assets . . . We’ve combined them with another successful player so that they get better attention, better prospects for growth.
“The tie-up really becomes a leading downstream energy player outside of southern Africa.”
Nhleko, a maverick businessman and a former CEO of MTN Group who built it into the giant it became on the continent in the early 2000s, is Phembani chairman and co-founder.
Vivo is set to gain about 300 Engen stations, taking its network to over 1 800 garages.
The deal excludes stations in South Africa, Botswana, Swaziland, Lesotho, Ghana and Namibia, where Engen has been more successful.
Eyes on ’second half in 2018’
The deal is worth R3.5-billion and represents 20% of Engen’s equity value, Bloomberg reported. Bungane declined to confirm details.
The transaction follows a restructure of Engen’s South African operations over the past 12 months resulting in a “fully integrated” lubricants division, and a partner for growth and returns in the international business.
Engen CEO Yusa’ Hassan sent a memo to staff this week, which Business Times has seen, saying: “We have all faced uncertainty this year . . . we have removed so much uncertainty, in some cases years of it, through these achievements. We are now set up to be stronger and more successful than before.”
He expected the transaction to be concluded by “the second half of 2018”, pending the finalisation of outstanding regulatory approval. Engen spokesman Gavin Smith said Hassan was not available for further comment.
Sasol station surge
Meanwhile, Sasol planned to add 200 service stations to its network of 400 to better match its production of fuel in South Africa, Bloomberg reported this week.
The shift in strategy follows Glencore’s purchase of Chevron’s controlling stake in southern Africa that includes more than 800 fuel stations in October; this comes after Chevron announced plans to sell in January 2016.
“We feel like we are giving away margin, not matching our retail capacity closer to our actual production capacity,” joint Sasol CEOs Stephen Cornell and Bongani Nqwababa said.
Sasol was also reviewing existing assets to boost profitability by 15% in the next five years.