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Husky holder Li gives cash infusion with C$1.7 billion deal

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Husky Energy Inc's controlling shareholder Li Ka-Shing is giving it a cash injection as two of his companies pay C$1.7 billion (S$1.82 billion) for a majority stake in some of the Canadian oil producer's Western Canada pipelines.

[CALGARY] Husky Energy Inc's controlling shareholder Li Ka-Shing is giving it a cash injection as two of his companies pay C$1.7 billion (S$1.82 billion) for a majority stake in some of the Canadian oil producer's Western Canada pipelines.

Power Assets Holdings Ltd and Cheung Kong Infrastructure Holdings Ltd, both part of Hong Kong billionaire Mr Li's corporate empire, are together buying a 65 per cent stake in the midstream assets as Husky seeks to shore up its finances in the worst oil market downturn in decades. That includes about 1,900 kilometres (1,180 miles) of pipelines in Alberta and Saskatchewan, 4.1 million barrels of oil storage capacity in Hardisty and Lloydminster and other assets.

"For a large part, it's just them moving money around but it helps Husky's balance sheet," Michael Dunn, an analyst at FirstEnergy Capital Corp in Calgary, said Monday in a phone interview.

Energy companies are making dispositions, reducing spending and cutting workers as US crude prices hover above US$40 a barrel almost two years into a slump. Husky's sale of the midstream assets announced Monday is part of a plan for divestitures laid out last year that also includes oil and natural gas producing properties across Western Canada and a royalty interest on some of its output that altogether could be worth C$3.6 billion to C$4.7 billion, according to an estimate from RBC Dominion Securities.

The sale to businesses controlled by Mr Li, the richest man in Hong Kong, is probably the best outcome for Husky because the offer was presumably the highest bid Husky received and the company might not have wanted to sell such a large stake in the pipelines to anyone other than the majority shareholder, Mr Dunn said.

Husky will retain a 35 per cent interest in the assets and continue to operate them, according to terms of the deal.

Mr Li and one of his investment companies together own about 69 per cent of Husky, according to data compiled by Bloomberg.

"This transaction unlocks significant value and supports our objective of strengthening the balance sheet," Asim Ghosh, chief executive officer of Calgary-based Husky, said in a statement Monday.

RBC Capital Markets and HSBC Securities (Canada) Inc acted as financial advisers to Husky, while BMO Capital Markets acted as an adviser to a committee of independent directors of Husky and also gave a fairness opinion to the entire board.

Husky posted a loss of C$458 million in the first quarter, or 47 Canadian cents a share, compared with a profit of C$191 million or 17 Canadian cents a year earlier, the company also said on Monday in a release after North American markets closed.

In addition to depressed oil prices and the lowest refining margins in the US Midwest since 2010, the results included losses tied to Husky's hedging, refining inventories and income tax expenses.

US crude averaged US$33.63 a barrel in the first quarter, down from US$48.57 a barrel in the same period of 2015.

Husky disclosed a dispute over gas sales from the Liwan field in the South China Sea. Husky said it was paid by its customer, which it didn't identify, only for volumes sold in the first quarter, rather than for the full volumes agreed to under its take-or-pay contract.

Its partner in the project Cnooc Ltd, a Chinese state-owned energy company, indicated that there were changes in the gas market in Guangdong, a coastal province in Southeast China, Husky said. Husky said its in discussions with Cnooc to find a solution and will take legal action if it can't obtain a "satisfactory outcome."

BLOOMBERG