TULLOW OIL chief Aidan Heavey clearly has nerves of steel. In the midst of the worst recession in living memory and a global credit crunch, the Irishman has sought to extend the company’s credit lines by $600 million to $2 billion.
This is in addition to raising £400 from shareholders through a placing of 66.9 million new shares.
The funds will be used to help Tullow exploit its two "world class" oil finds in Ghana and Uganda, which are being fast tracked for production. It also has a large gas prospect called Jubilee in Ghana.
The oil from Ghana will be pumped in the second half of 2010. Not bad for a field that was only discovered in 2007. Between them, Ghana and Uganda could yield 1.5 billion barrels of oil.
Tullow expects to spend about £600 million on capex this year.
Tullow says the refinancing of its debt is 60 per cent completed and should be closed before the end of February. It expects to end up paying an interest charge of 3.75 per cent above Libor, the inter-bank rate.
On a conference call with analysts on Wednesday, Heavey and his fellow executives were keen to knock on the head any doubts that institutional investors might have about its ability to shoulder such a burden, especially in light of writes downs on a number of other assets and the collapse of the £285 million sale of its interest in the MBoundi project in Congo.
"We are in a very good position from a funding point of view," chief financial officer Ian Springett told the analysts. "Our balance sheet as we start into 2009 is very well funded."
Tullow's net debt stands at £390 million.
Heavey was even more direct in answering questions on its debt and fundraising.
"What we have now is a business that we can put all these questions and rumour behind us and get on with adding value to the business. The funding issue as far as we are concerned is put to bed now.
"There is definitely a move to free up lending and you can see from the way that our facility has been working that we have tremendous support from our banks. You will get funding ."
As to the effects of various stimulus packages from governments across the world and its likely impact on easing the flow of credit to businesses, Heavey said: "It's starting to free up but it's going to take time. But it has to work."
Amen to that.
Troubled Superquinn learns a Lidle about pricing
AS SUPERQUINN prepares to lay off 400 workers, at least one senior member of the Irish-owned grocery chain is preparing to leave of his own accord.
It is understood that Ken McGrath, Superquinn’s operations and planning director, has been headhunted by German discounter Lidl to become its new managing director in Ireland.
McGrath, who is well regarded in the industry, is expected to take up his role in the next couple of months. It is understood Superquinn tried hard to retain his services, but the lure of the top job at Lidl has proven too good an opportunity to knock back.
McGrath will take the reins from Patrick Kaudeawitz, who is returning to Germany after a successful stint here overseeing the group’s expansion since its launch some years ago.
While Superquinn’s sales are flagging, the discounters Lidl and Aldi are going gangbusters here.
Aldi’s Irish business this week reported a 21 per cent rise in like-for-like sales in 2008. Its market share is now close to 5 per cent. Just a couple of years back, Aldi and Lidl could only muster 5 per cent between them. Aldi recently broadcast its plans to spend €350 million on 32 new stores over the next three years.
Sadly, Lidl is somewhat more media shy. What is clear, however, is that the company is expanding – it already has more than 100 stores in Ireland. The discounter is also attracting a greater number of shoppers now than 12 months ago, largely due to the effects of the recession.
According to Lidl’s Irish website, its shops employ about 20 staff each. Compare this to Superquinn, where the average headcount per store is about 138.
Of course, Superquinn prides itself on providing top-class fresh food and a friendly service. You won’t find any butchers in Lidl to help you choose a nice piece of fish and you’ll have to pack your own bags at the checkout. And there are no coffee shops for a little pick-me-up.
With the country in the teeth of the worst recession in decades, Irish shoppers are increasingly less fussed about these niceties.
They want cheap prices, first and foremost – a point that has been recognised to an extent by Superquinn boss Simon Burke in recent times with his 1970s pricing promotion and other cut-price deals. It seems that no matter how hard it tries, Superquinn continues to find the going tough while the discounters go from strength to strength – a view that Ken McGrath has no doubt formed, too.
Aer Lingus not free of O'Leary yet
RYANAIR’S PLEA yesterday morning at its weekly press conference from the Merrion Hotel for Aer Lingus’s shareholders to make up their minds on his €1.40-a-share offer before the clock ran down was obviously heard by transport minister Noel Dempsey in Kildare Street.
Within hours the minister had delivered his verdict and it won’t have pleased Michael O’Leary, no matter how much he protests that he doesn’t care that his €748 million bid was turned down.
Dempsey knocked it back on the grounds that it “greatly undervalues” Aer Lingus and wouldn’t be in the best interests of consumers or concur with the government’s airports policy.
It is hard to argue with him on any of those points. In spite of the guarantees that Ryanair gave in relation to how Aer Lingus would be run and the control of slots at Heathrow, it is hard to conclude that that a merger would have been in the interests of consumers to effectively have one airline controlling our skies.
And no matter what O’Leary says in relation to giving up slots at Dublin Airport, the simple fact is that no airline in Europe would be prepared to take on Ryanair in its own backyard.
So what now for Aer Lingus? The government’s rejection of Ryanair’s offer overshadowed its announcement of a partnership with United Airlines to operate a service between Washington and Madrid from the spring of 2010.
Cynics would have you believe that the announcements were made on the same day to illustrate that Aer Lingus does indeed have an independent future. It does seem a little odd that the airline would trumpet a service now that is still up to 15 months away from launch.
Is a new, more Machiavellian Aer Lingus emerging?
On the face of it, the deal with United looks a little odd. How much money can you possibly make from one transatlantic service a day? It hardly seems transformational. And why Washington-Madrid with United, a loss-making airline dinosaur?
Ryanair scoffed at the move. It sees Aer Lingus as something of a patchwork quilt, with bits being added all the time. O’Leary argues that it will wither on the vine if left to its own devices.
That remains to be seen. Aer Lingus has €800m-plus in cash on its balance sheet and cheaper labour costs as a result of its latest cost-cutting deal with staff. Its decision to launch a base from Gatwick shows that it is looking beyond these shores for growth.
But to really crack on with its growth strategy, Aer Lingus needs to get Ryanair off its share register. It is pursuing a legal challenge in the European courts although success is far from guaranteed.
Aer Lingus said it hoped to form a joint venture with United Airlines in a couple of years time to operate a network of routes from the US to Europe.
This would require shareholder support at and egm and is not a given with Ryanair holding 29.8 per cent stake in the business.
Also, who’s to say that Michael O’Leary won’t come knocking again in 18 months time?
If Aer Lingus is to have an truly independent future then Aer Lingus chairman Colm Barrington needs to follow through on a promise he made in The Irish Times last month and persuade a third party to get on board.
Otherwise, it might well be only a matter of time before O’Leary finally lands his prey.
Little Things
Dublin Bus might want to consider reworking its marketing slogan to read: “Less for Much More.”
At the same time as it is taking 120 vehicles off the road, slashing its off-peak schedule and cutting some services in a bid to save money, it has raised cash fares by 10 per cent and jacked up its “taxsaver commuter” tickets by an eye-popping 26 per cent.
The annual taxsaver bus-only ticket has risen in price to €980 this year from €780 in 2008. By contrast, an annual taxsaver Luas-only ticket has increased in price by just 9.2 per cent to €710.
Of course, Luas is run by an efficient privately-owned operator called Veolia while Dublin Bus is a spluttering state-owned relic.
Accounts just filed by posh UK retailer Harvey Nichols give a hint of the losses racked up to date by its shop at the Dundrum Town Centre.
The financial statements for Broad Gain (UK) Ltd show that as of March 29th 2008, it had “irrevocably guaranteed” net liabilities of €4.8 million for Harvey Nichols (Dublin) Ltd. This compared with €3.7 million a year earlier.
Digicel has been mentioned in dispatches as a possible buyer of a 51 per cent stake in the government-owned Bahamas Telecommunications Company. Five “major players” are reported to have expressed an interest in the stake. Digicel has made no secret of its desire to enter the market, which is one of the gaps in its Caribbean coverage.
Abridged accounts just filed for radio-station Dublin’s Country Mix, which is backed by financier Paul Coulson and former broadcaster David Harvey, show its losses widened in the year to the end of March 2008.
Accumulated losses increased to just under €3.4 million last year from €3.2 million for the niche station, which is based in Bray although it holds a Dublin licence.
Star owed €128,621 to directors Gerry Carron and Sean Ashmore for services provided by East Coast Radio, with whom it shares office space in Bray. The pair are also investors in East Coast.
