CIC Energy shares hit records on P2.8 bn takeover deal

MBONGENI MGUNI
Staff Writer | Thursday November 25, 2010 00:00

 

Ahead of Tuesday's announcement of the deal, CIC Energy's counter had climbed more than 70 percent in the past fortnight, reaching a 12-month high of P33.29 per share on November 19. Since then, the stock has declined to hover around P33, a stretch from the P19 it traded at throughout September, October and part of November.

By yesterday, CIC Energy was trading at P33.08 with no volumes trading hands, as investors held onto their shares or demanded higher prices in light of the 7.42 Canadian Dollar per share offer proposed by JSW Energy.

Holders of CIC Energy's BSE shares are apparently unwilling to part with them at prevailing prices, preferring rather to hold on and participate in JSW's 7.42 Canadian Dollar (P49) offer. The Mmamabula Energy Project (MEP) developer listed on the BSE in 2006.

Analysts said the rise in CIC Energy's share price has largely been based on speculative trading ahead of this week's announcement. In the past two months, the Canadian company's future has been sweet and sour: while the South African government's energy plan has sidelined the MEP, the CIC Energy's holdings have gained through an expression of interest submitted for the Trans-Kalahari Railway and competing takeover offers.

'We noticed that when the share price jumped, it was in one trading session and it rose by about 30 percent. The volumes were very thin which suggests that the investor was willing to buy shares at a higher price,' said Garry Juma, a Motswedi Securities analyst.

'On the whole, there has not been much reason behind the rise in the share price. To some extent, resource sector investors tend to be more speculative than basing their choices on fundamentals and this has led to increasing appetites.

'We have seen a rise in bids and offers for CIC Energy amid the various announcements the company has been making in recent weeks. These statements improved investor sentiment in the stock, although the company's future was seen as uncertain.'

Juma said CIC Energy volumes were generally thin as shareholders were unwilling to part with their holdings for the prevailing prices. He said this created a scarcity of shares for sale, which in turn contributed to higher prices.

Analysts believe investors are eager to snap up CIC Energy's shares at the prevailing P33 prices and reap a premium after the December 20 offer of P49. However, those holding the shares have adopted the same strategy, resulting in low volumes trading hands.

On Tuesday, CIC Energy said it had entered into a binding agreement with JSW Energy under which the Indian company had made an offer for 100 percent of the MEP developer's shares.

Following a period of exclusive negotiations, CIC Energy said JSW's offer was reasonable and it would be recommending it to shareholders once the offer opens on December 20.

'The offer represents a premium of 203 percent to the volume weighted average trading price for CIC Energy's shares on the Toronto Stock Exchange for the 30-trading day period ending September 14, the day prior to the announcement of the first proposal CIC received with respect to the acquisition of the company,' CIC Energy executive said.

'The Board has received an opinion from its financial advisor that the consideration to be received by CIC Energy shareholders under the offer is fair, from a financial point of view. The Board has determined to recommend acceptance of the offer by CIC Energy shareholders.'

Already, CIC Energy directors and officers have committed themselves to offering up their shares to JSW.'We believe that the terms of this offer provide fair value for CIC Energy shareholders in the current environment,' said CIC Energy Chairman, Warren Newfield.

'With South Africa's increasingly apparent shift in energy policy, the outlook for coal-based power producers looking to supply South Africa has weakened.'

For this part, the Indians will be eager to tap into CIC Energy's 2.6 billion tonne coal resources in eastern Botswana. JSW Energy will find a ready market back home in India, which currently imports 67 million tonnes per annum, on top of the 530 million domestic production.

India expects its coal demand to triple in the next two decades to more than two billion tonnes per annum.

JSW Energy executives plan to tap into Mmamabula's resources to supply their existing power projects and expect to start production within the next three to five years. The Indian company has an operational capacity of 1, 430 megawatts (MW), with another 1, 710 MW at an advanced stage of completion.

The company is targeting an aggregate generation capacity of 12, 070 MW by 2015-16.