Royal Dutch Shell plc (ADR) (NYSE:RDS.A) Forms Alliance With DCC To Divest Hong Kong LPG Business

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Royal Dutch Shell plc (ADR) (NYSE:RDS.A) Forms Alliance With DCC To Divest Hong Kong LPG Business

Royal Dutch Shell plc (ADR) (NYSE:RDS.A) recently signed an agreement to divest its liquefied petroleum gas venture in Hong Kong and Macau to DCC Energy Ltd.

Terms of the agreement

DCC is a subsidiary of DCC plc DCCPF and supplies LPG and oil. The agreement is part of the portfolio optimization strategy and the $30 billion divestment goal for 2016-2018.

Shell will offload its interests in the LPG deal in Hong Kong and Macau. This has been in operation for 60 years and it deals in supplying infrastructure to meet the energy requirements for around 100,000 households.

Shell will engage in a long term brand license deal with DCC as part of the divestment deal. This will see to it that Shell remains visible throughout the LPG venture in Hong Kong and Macau. The deal is valued at $150 million and is expected to close in the first quarter of the year 2018.

The deal is subject to the regulatory consents as well as operating license approvals. After the deal comes into effect, the local LPG employees of Shell will absorb in the DCC energy.

The deal is worth past the 2/3 target. Shell sold a total of $3 billion value in assets. The agreement gives the company some uplift in the drive to decrease the debt after the acquisition of BG Group which was valued at $47 billion.

Benefits to Shell

The company hopes that the acquisition will reduce the cost of the company, improve the cash flow and enhance the return to capital. The deal is also in synchronization with the company’s objective to upgrade as well as streamline the portfolio as it seeks to boosts the upstream footprint. The company is seeking to concentrate on downstream activities on areas where it can reap huge profits.

Benefits to DCC

The deal is in line with the company’s goal to develop a strong and substantial presence in the market. This acquisition marks the first of its kind outside Europe. It provides a platform for development of the LPG in the Asian market. It will also help in improving the company’s relationship with Shell as well as provide a strong foothold in Hong Kong and Macau.