MELBOURNE, Dec 14 (Reuters) - Santos Ltd STO.AX said Wednesday it will raise up to A$1.5 billion ($1.12 billion) through a share placement to institutions and existing shareholders as it looks to cut debt and boost cash flow to grow in a low-price oil environment.
The Australian oil and gas producer has already secured an institutional share placement of A$1.04 billion, which will be followed by an offer to existing shareholders to buy new shares to raise up to $A500 million, it said in a statement to the Australian regulator.
Santos will offer 256 million shares at A$4.06 a share to institutions, according to the statement.
"The equity raising is a key step in ensuring that Santos now has a solid platform for growth," Santos Chairman Peter Coates said in the statement.
The company on Dec 8 announced a turnaround strategy, saying it planned to reduce debt by cutting costs and putting some assets up for sale over the next three years, to set itself up to grow as a gas producer. capital raising would allow the company to focus on its five core long life natural gas assets as it transforms the business, Chief Executive Officer Kevin Gallagher said.
"(It) will remove the constraints around growing the business in a low oil price environment. Our goal remains to target debt reduction through maximising operating cash flow, sales of non-core assets and releasing capital from infrastructure," he said.
The capital raisings will lower Santos's gearing ratio to below 30 percent, Santos said. The company has a BBB-minus credit rating from S&P, the lowest investment grade rating.
Santos, which counts China's ENN Group as its largest shareholder, plans to focus on five long-life gas projects in Australia and Papua New Guinea, while pooling together its remaining assets, including stakes in Indonesia and Vietnam and ageing oil fields in Australia, into a separate business.
Santos shares, which have lost two-thirds of their value since oil prices collapsed in mid-2014, fell by 2.9 percent by the close on Wednesday before the announcement, after a build in U.S. crude inventories weighed on global oil prices. O/R ($1 = 1.3356 Australian dollars)