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Regulatory hurdles notinsurmountable Regulatory approvals for ADNOC's potential acquisition ofSantos will be challenging, although there are reasons for thetransaction to be viewed favourably. We reiterate ourOverweight rating. Jit Ming Tan, CFA+65 6308 3210jitming.tan@barclays.comBarclays Bank, Singapore •Reiterate Overweight rating:A successful transaction could see STOAU's bond spreads•closer to z+90 to z+100. This implies a further ~30bp upside evenafterthis morning's spreadtightening. In the meantime, we expect bond spreads to tighten gradually while we await theregulators' decisions. •Credit positive:We view Abu Dhabi National Oil Company's (ADNOC) bid for Santos as being•credit positive for bondholders, as ADNOC is rated AA whereas Santos is rated mid to low BBB. •Regulatory hurdles are not insurmountable:The transaction will have to be approved by a•number of regulators, including Australia's Foreign Investment Review Board (FIRB). Apotential acquisition of Australia's second-largest oil and gas producer will likely raiseconcerns over the country's energy security, especially because the potential acquirer isowned by a foreign government. However, we note that Australia and the UAE signed aComprehensive Economic Partnership Agreement treaty (CEPA) in September 2024, whichincludes the promotion and facilitation of two-way investments. In addition, the acquiringconsortium includes an American investment firm. This suggests to us that the potentialtransaction could be viewed in a more constructive manner by the FIRB. Reiterate Overweight rating We reiterate our Overweight rating on Santos following today's announcement. We believethere is room for further spread compression, evenafterthe 37-55bp of spread tightening thismorning. Although regulatory hurdles are considerable, we think the transaction could beviewed favourably by the regulators. In the event that Santos is acquired by ADNOC, we would expect its ratings to be close or equalto ADNOC's AA ratings. Under this scenario, we would expect bond spreads in the z+90 to z+100range. We view ADNOCM (Aa2/AA/AA) as the closest comp in the event of a successful acquisition. TheADNOCM '29s are indicated at z+85 on Bloomberg, while the ADNOCM '34s are indicated atz+106. In comparison, the STOAU '29s are currently at z+135 while the STOAU '33s are at z+171. Thisdocument is intended for institutional investors and is not subject to all of theindependence and disclosure standards applicable to debt research reports prepared for retailinvestors under U.S. FINRA Rule 2242. Barclays trades the securities covered in this report for itsown account and on a discretionary basis on behalf of certain clients. Such trading interestsmay be contrary to the recommendationsofferedin this report. Please see analyst certifications and important disclosures beginning on page 4.Completed: 16-Jun-25, 02:48 GMTReleased: 16-Jun-25, 02:52 GMTRestricted - External Other potential comps include Saudi Arabian Oil Co (ARAMCO, Market Weight, Aa3/NR/A+,covered by Stella Cridge1, Barclays, UK) and Petronas (PETMK, A2/A-/BBB+). The ARAMCO andPETMK 2029 and 2031 bonds are indicated in the range of z+93 and z+105. We expect the STOAU bond spreads to tighten gradually towards these comps in the comingmonths while regulatory approvals are pending. The key risk is clearly the possibility that the proposed transaction fails, possibly becauseregulatory approvals are not received. In this scenario, the STOAU bonds would likely retracemost of today's spread tightening. Credit positive but regulatory hurdles areconsiderable We view Abu Dhabi National Oil Company's (ADNOC) bid for Santos as being credit positive forbondholders, although it is unclear at this stage if the potential transactions will be ultimatelyapproved by the regulators. AA rated ADNOC, through itsoffshorefunding entity ADNOC Murban RSC (bond ticker: ADNOCM) is ratedAa2/AA/AA by the three rating agencies. In the event that the transaction is successfully completed, we can expect Santos' credit ratingsto be raised to a level close or equal to ADNOC's double A ratings, from its current Baa3/BBB-/BBB. Change of control does not apply The STOAU bonds contain change-of-control (CoC) covenants that would be triggered if achange- of-control event occurs and its ratings were downgraded below investment grade. Inour view, an acquisition by a higher-rated corporate would lead to bond spreads tightening,while an acquisition by a lower-rated entity could potentially trigger the CoC, allowingbondholders exercise the put option on the STOAU bonds at 101 plus accrued interest. In this case, we would not expect Santos' ratings to be downgraded below IG and hence the CoCis not likely to be triggered. Regulatory hurdles are considerable, but not insurmountable We believe regulatory approvals will be the key consideration for this transaction, especiallybecause Santos's oil and gas assets can be considered strategic to Australi