Time is right for Asian spinoff

With financial markets stabilizing and the economic picture brightening, Husky Energy Inc. (TSX:HSE) could pull the trigger on its plan to spin off its southeast Asian business sometime early next year, an analyst said Wednesday.

CALGARY — With financial markets stabilizing and the economic picture brightening, Husky Energy Inc. (TSX:HSE) could pull the trigger on its plan to spin off its southeast Asian business sometime early next year, an analyst said Wednesday.

“Six months ago the market probably didn’t have a lot of appetite for that because the outlook was still pretty gloomy and the markets were still pretty much in decline,” said Lanny Pendill, an analyst with Edward Jones.

However, investors have become much more optimistic, and the number of equity issues, mergers and acquisitions have been picking up.

“If they’re looking at an early 2010 spinoff, I think the timing would be appropriate,” Pendill said.

The chief executive of the Calgary-based oil and gas firm mentioned the possible split at the company’s annual meeting in April.

At the time, John Lau said the Asian spinoff would have a completely separate board of directors and management team. A portion of it would be publicly traded, potentially on both Toronto and Shanghai stock markets.

The timing of the transaction was dependent on when economic conditions improved.

A Husky spokesman said Tuesday there was no new information about when Husky expected to move on the spinoff plans.

EnCana Corp. (TSX:ECA), is about to split its business up — along oil and natural gas lines, rather than geographic.

EnCana had put its plans first announced in May 2008 on hold until the economic chaos subsided, but decided a few weeks ago that the time was right to move ahead. The transaction is expected to wrap up later this year.

As in the EnCana case, the Husky move is about squeezing more value out of the assets as a smaller, more focused business rather than part of a bigger entity, said John Stephenson, portfolio manager with First Asset Investment Management.

“We’ll have this extra pop in the Husky stock,” he said.

There are also benefits to listing the stock in the “frothier” Asian market, where there are fewer energy firms to choose from than the Toronto Stock Exchange, which is home to a huge number of resource-focused stocks, he said.

Husky currently has seven exploration blocks covering nearly 33,000 square kilometres of the Chinese coast.

It operates the nearly 3,000-square-kilometre Liwan deep water field in the South China Sea about 300 kilometres southeast of Hong Kong, which is estimated to contain between four to six trillion cubic feet of natural gas.

Husky has also signed 11 production sharing contracts with China National Offshore Oil Co. since 2001, which allow the Chinese firm to exercise up to a 51 per cent working interest.

It has a 40 per cent interest in the Wenchang field southwest of Hong Kong, a full stake in an East China Sea offshore block near Shanghai as well as operations in Indonesia’s Madura strait.

At the annual meeting, Lau said the Asian spinoff would continue to work closely with its Chinese partner.

In addition to the Southeast Asian assets, Husky also has leases in the oilsands, offshore oil and gas platforms in Eastern Canada, refineries in the United States and Canada and a chain of retail gas stations across western Canada.

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