Super Fund moves for oil giant

Shell says it hopes to finalise talks over the sale of its New Zealand service stations and stake in New Zealand Refinery within the next month. Photo / Martin Sykes

New Zealanders could end up owning the petrol station and refining assets of Shell - the country's second largest petrol company - if a joint offer by the New Zealand Superannuation Fund and Infratil goes ahead.

Infratil's investment management business Morrison & Co yesterday said the two investors had paired up and were in exclusive negotiations with Shell over the possible acquisition which could be worth up to half a billion dollars.

Shell revealed in February this year it was reviewing its New Zealand business with a view to selling its service stations and 17 per cent stake in New Zealand Refining (NZR) - which owns Marsden Point - New Zealand's only oil refinery.

Speculation had centred around potential buyers ranging from United States refiner Valero to India's state-owned oil marketing firm Hindustan Petroleum and supermarket owners Progressive Enterprises and Foodstuffs as well as The Warehouse.

But the bid from Infratil and the $15 billion New Zealand Super Fund - a fund set up with taxpayers' money to help pay for the future costs of retiring Kiwis - has been welcomed by market commentators.

McDouall Stuart analyst John Kidd said it was healthy to see investor interest coming from New Zealand.

"These are high quality investors bidding for a high quality asset."

AA senior policy analyst Mark Stockdale said there had been a lot of speculation over the potential buyer but the joint bid by two New Zealand groups was positive.

Stockdale said it could also be good news for motorists because if the Shell stations were not sold to a competing oil company there was not likely to be a reduction in competition.

"It could just be a change in ownership but business as usual for motorists."

Retirement policy expert Michael Littlewood said it would be a major direct investment for the Super Fund.

The majority of the Super Fund's money is outsourced to fund managers who then invest it by buying shares in local companies.

But the fund has been under pressure from the Government to boost its local investment from around 20 per cent to 40 per cent.

Littlewood said the size of the Super Fund meant it was difficult for it to find assets to invest in locally without distorting the New Zealand market.

He believed the Shell investment was the result of indirect pressure from the Government to invest in New Zealand.

"It was inevitable but the guardians [of the Super Fund] won't, obviously, admit that."

A spokesman for the New Zealand Super Fund said there had not been any pressure from the Government to make the offer.

"This and any other investment we do in New Zealand has to be identified and considered on a commercial and prudent basis."

Littlewood said it would remain to be seen if the investment proved a good one for New Zealanders and their retirement savings.

"This is a business that isn't without risks. We don't know what the profitability of it will be in the future."

Kidd said the stake in the refining business was the most valuable part of the Shell business as it was a good asset that was well-maintained.

But his recent advice to NZR investors had been to sell down their stakes because of the oversupply of oil.

That had resulted in a significant reduction in revenues for NZR and a drop in its share price which has fallen from a year high in July of $7.65 to $5.22.

"We are predicting a second-half loss."

Kidd said the refining business was very cyclical and it was coming down off a peak. "It's on the downward slide at the moment."

But the drop in share price could also mean Infratil and the Super Fund would pay far less for the Shell assets than they would have four months ago.

Back then Shell's stake was valued at close to $300 million but yesterday it was down to around $212 million.

Kidd said Shell was not short of money and would not sell if it did not get the right price.

A spokesperson for Shell said it was too early for Shell to confirm a deal or comment on timescales but it hoped to finalise discussions within the next month.

Infratil chief executive Marko Bogoievski said the non-binding proposal was in its final phase of due diligence but the company would not be making any further comment until progress on the discussions had been made.

Infratil shares closed down 6c on $1.59 yesterday. NZ Refining closed down 9c at $5.11.