Global consortium to invest record Dh76B in Adnoc’s gas pipelines
The consortium will take a 49% stake in Adnoc Gas Pipeline Assets while Adnoc will retain the remaining 51%, maintaining full operating control.
Some of the world’s leading infrastructure investors, sovereign wealth funds and pension funds have signed a $20.7-billion (Dh76 billion) agreement to invest in Abu Dhabi’s gas pipelines. The region’s largest energy infrastructure deal, the transaction will result in upfront proceeds of over $10 billion to the Abu Dhabi National Oil Company (Adnoc).
Adnoc said on Tuesday that it has entered into an agreement with a consortium of investors comprising Global Infrastructure Partners (GIP), Brookfield Asset Management, Singapore's sovereign wealth fund GIC, Ontario Teachers’ Pension Plan Board (Ontario Teachers’), NH Investment & Securities and Snam, which will invest in a set of Adnoc's gas pipeline assets valued at $20.7 billion.
“We are pleased to once again partner with some of the world’s leading global infrastructure and institutional investors in what marks the region’s largest energy infrastructure investment,” said Dr. Sultan Al Jaber, UAE Minister of State and CEO of Adnoc Group.
The consortium will take a 49 per cent stake in Adnoc Gas Pipeline Assets, a newly formed subsidiary of Adnoc with lease rights to 38 pipelines which connect Adnoc’s upstream assets to local UAE customers. The pipelines cover a span of 982.3km and Adnoc will retain the remaining 51 per cent majority stake, maintaining full operating control over the assets.
The UAE holds the world’s sixth-largest natural gas reserves. Adnoc’s gas strategy aims to meet in-country gas demand and support the UAE in achieving gas self-sufficiency.
Adnoc will lease its ownership interest in the assets to its subsidiary, Adnoc Gas Pipelines, for 20 years in return for a volume-based tariff subject to a floor and a cap. The new subsidiary will distribute 100 per cent of free cash to the investors in the form of quarterly dividends. The transaction is subject to customary closing conditions and regulatory approvals.
Ownership of the pipelines, management of pipeline operations, and all responsibility for associated operational and capital expenditures will remain with Adnoc. For Adnoc’s partners, this transaction represents an opportunity to invest in quality energy infrastructure assets with a low-risk profile that generate stable cash flows.
This agreement is the largest transaction since Adnoc announced the expansion of its partnership and investment model in 2017, which aims to unlock value for Adnoc. Since then, Adnoc has entered the debt capital markets for the first time, issuing a $3 billion bond backed by the Abu Dhabi Crude Oil Pipeline; partially floated Adnoc Distribution, the first-ever IPO of an Adnoc Group company; and entered into several strategic partnerships in its drilling, refining, fertiliser and trading businesses, among others.
In November 2018, Abu Dhabi's Supreme Petroleum Council approved Abu Dhabi National Oil Company's (Adnoc) new integrated gas strategy and plans to increase its oil production capacity to 4 million barrels per day (mmbpd) at the end of 2020 and 5 mmbpd by 2030.
The SPC's approval of Adnoc's gas strategy would add potential resources that will enable the UAE to achieve gas self-sufficiency, with the aim of potentially transitioning to a net gas exporter. SPC had also announced new discoveries of gas, totaling 15 trillion standard cubic feet. It also announced new discoveries of 1 billion barrels of oil in place and approved Adnoc's new five-year business plan and capital investment growth of Dh486 billion between 2019 to 2023.
“Today’s landmark investment signals continued strong interest in Adnoc’s low-risk, income-generating assets, and sets another benchmark for large-scale energy infrastructure investments in the UAE and the wider region. It solidifies Adnoc's position as an attractive partner and reinforces the UAE’s track record as the region’s go-to foreign direct investment destination, even during the current unprecedented circumstances,” said Sultan Al Jaber.
Monica Malik, chief economist at Abu Dhabi Commercial Bank, said deal reflects the strong ability to attract capital, which can then be invested in projects linked to Adnoc's medium-term growth plans.
“This looks positive from both sides. For investors, the deal provides access to strong assets with the outlook for regular payment. For Adnoc, it unlocks capital with can then be utilised to progress with its medium-term investment plans,” Malik told Khaleej Times.
Anita Yadav, Partner, Aspire Cap, said because oil revenues have dropped, GCC governments are cautious of not spending too much money of their own on infrastructure projects. On the other hand, international fund managers are keen to invest in GCC because of strong credit fundamentals and good returns on investments. “So it is a good match; we will likely to see more and more such deals in other sectors such as roads, railways, power generation, water supplies and desalination plants.”
She said: “The risk of default in this region is not there as governments have a very large asset bases of their own. If default is not happening, currencies are linked to the dollar and investor is still getting good 5-6 per cent return, therefore, it is a very attractive place among emerging markets to invest in.”
“This milestone transaction demonstrates the trust and confidence placed in Adnoc by the global investment community and unlocks significant value from our pipeline portfolio, following last year's groundbreaking oil pipeline infrastructure investment partnership,” Al Jaber said.
“Today’s landmark investment signals continued strong interest in Adnoc’s low-risk, income-generating assets, and sets another benchmark for large-scale energy infrastructure investments in the UAE and the wider region. It solidifies Adnoc's position as an attractive partner and reinforces the UAE’s track record as the region’s go-to foreign direct investment destination, even during the current unprecedented circumstances,” he added.
Adebayo Ogunlesi, Chairman and Managing Partner of GIP, said: “Adnoc's gas network is a core piece of midstream infrastructure in the UAE and this transaction presents a unique opportunity to invest in an asset of this quality and importance while also supporting Adnoc in their smart growth strategy.”
“We are pleased to invest in this strategic pipeline system which serves as the critical link between UAE low-cost natural gas supply and robust in-country demand,” said Bruce Flatt, CEO, Brookfield Asset Management.
“This strategic transaction is attractive to Ontario Teachers’ as it provides us with a stake in a high-quality infrastructure asset with stable long-term cash flows, which will help us deliver on our pension promise,” said Ziad Hindo, Chief Investment Officer, Ontario Teachers’.
“Investing into Adnoc's gas infrastructure and supporting Abu Dhabi’s energy initiatives reinforces our investment diversification strategy and demonstrates Korea’s growing presence in the global infrastructure space. I am confident this milestone transaction can become a stepping-stone to broaden Korean investments in the region,” said Young-Chae Jeong, Chairman & CEO of NH Investment & Securities.
Snam CEO, Marco Alverà, said: "With this strategic transaction, we strengthen our international footprint by entering a country and a region that are key to our sector. Our aim is to promote further cooperation opportunities, particularly in the energy transition.”
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