Asia-Pacific Oil & Gas companies more likely to divest than their Global counterparts
- 48% of Asia-Pacific Oil and Gas respondents, compared to 39% six months ago, feel the local economy is improving
- 42% of Asia-Pacific Oil and Gas respondents are likely to divest, up from 28% six months ago
- 78% of Asia-Pacific Oil and Gas respondents view the global economy as stable or improving
Hong Kong, 09 May 2012 — The sixth Ernst & Young Global Capital Confidence Barometer has found that despite higher oil prices, improving access to capital, increasing economic optimism and a generally more favorable deal environment, Oil and Gas executives are still cautious about engaging in M&A. However, Oil and Gas respondents expect divestment activity to increase over the next twelve months. The percentage of Global Oil and Gas respondents likely to sell assets over this period has risen from 20% in April 2011 to 47% in April 2012 while 42% of Asia-Pacific Oil and Gas companies are likely to divest, up from 28% six months ago. This is far stronger than the total global result where 31% of all companies are expecting to divest assets in the next year, up from 20% a year ago.
Sanjeev Gupta, Asia-Pacific Transactions Advisory Services Leader for Oil and Gas at Ernst & Young says “78% of Asia-Pacific Oil and Gas respondents view the global economy as stable or improving. They also show a marked upswing in confidence at the global level for corporate earnings, economic growth, employment growth and credit availability from six months ago. They still don’t view these metrics as positively as all global executives, and are still highly concerned with the regulatory environment.”
52% of all global respondents view the global economy as improving, compared with 29% of Asia Pacific Oil and Gas executives who expressed the similar view in April 2012, but which is significantly higher compared to 12% in October 2011. Fewer (22%) see the economy declining than six months ago (50%).
In Asia-Pacific, 48% of Oil and Gas respondents, compared to 39% six months ago, feel the local economy is improving. Globally, there has been a shift in sentiment with mature economies now seeing improvements while the emerging markets are relatively less optimistic.
Merger and acquisitions outlook
Oil and Gas respondents worldwide expect divestment activity to increase over the next twelve months. Asia-Pacific (42%) Oil and Gas respondents are likely to sell assets over this period, a strong increase from six months ago (28%), slightly less than Global Oil and Gas companies (47%), but well above global peers, 31% of whom expect to divest. The number of businesses globally in the Oil and Gas sector looking to sell assets has risen by more than 27% — a clear sign that companies regard portfolio management and a renewed focus on their core business as a priority.
Gaining market share continues to be the main driver for M&A in new and existing markets for both global companies and Asia-Pacific Oil and Gas companies although more (56%) Asia-Pacific companies are interested in existing markets than new markets (44%).
M&A activity is still most likely to be financed by cash. The majority (69%) of Asia-Pacific Oil and Gas respondents will only use cash, with risk aversion outweighing low interest rates. However, more (49%) are willing to use some debt (10-20 %) than six months ago when 50% said they would not use any debt to fund acquisitions. Just over a quarter (26%) of all global companies opts to use no debt, consistent with six months ago, but over double the % of Asia-Pacific respondents (12%).
Just 31% of the 141 Oil and Gas executives surveyed in April said they expected to pursue an acquisition in the next twelve months, down from 48% in October 2011, and the lowest figure since the barometer began in 2009. This is similar in Asia-Pacific with only 33% expecting to acquire over the next twelve months.
Gupta comments, “By contrast, the Oil and Gas companies expect divestment activity to increase significantly over the next twelve months. The percentage likely to sell assets over this period has risen from 20% in April 2011 to 47% in April 2012 highlighting that organizations are remaining conservative and focusing on their core business. The top five countries Asia Pacific Oil and Gas companies are investing in over the next twelve months are Canada, Indonesia, India, United States, and Vietnam.”
Impact of the Eurozone
Eighty-nine percent of Asia-Pacific Oil and Gas executives believe that the Eurozone crisis has affected their business. 56% of them are focusing on cost reduction or supply chain transformation to help offset the revenue and margin pressures and increased risks. While impacted by the Eurozone crisis, Asia-Pacific Oil and Gas respondents (37%) are more likely to take advantage of opportunistic M&A compared to all global counterparts (22%).
Credit conditions improving globally
Asia-Pacific Oil and Gas respondents have stepped up and are far more confident of the level of credit availability at the global level than they were six months ago. Today, 89% of Asia-Pacific respondents view credit conditions as stable or improving which brings them on par with their global Oil and Gas colleagues, 87% of whom share this view today, and more confident than the global sample (75%).
Just under half (42%) of Asia-Pacific Oil and Gas respondents are planning to refinance their debt over the next year.
Gupta explains, “The purpose of refinancing has changed from six months ago. The drivers are spread more evenly now, between optimizing the capital structure (27%), extending maturities (27%) , and reducing interest cost (28%) compared to six months ago when 60% were focused on reducing interest costs.”
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