Abu Dhabi Beats Aramco With IPO of Adnoc Fuel Stations Unit


By Anthony Dipaola , Tracy Alloway , and Mahmoud Habboush

Abu Dhabi National Oil Co. kick-started a round of privatizations in the Middle Eastern oil industry, saying it will sell shares in its retail fuel stations unit and list them on the local stock exchange.

The government-owned crude producer may sell more than 10 percent in the unit, Abu Dhabi National Oil Co. for Distribution PJSC, Adnoc Chief Executive Officer Sultan Ahmed Al Jaber said Monday in an interview in Abu Dhabi. Adnoc, which sold its first bond last month, is close to closing a loan as it raises funds to expand and will seek partners to help develop businesses like oil production and refining, he said.

“What we’re trying to achieve here are numbers that would show an unprecedented commitment from the international market as well as other local investors to work alongside Adnoc in one of its very important subsidiary companies,” Al Jaber said.

Al Jaber discusses the share sale with Bloomberg’s Tracy Alloway.

The initial public offering is the first of several expected in the region, most notably that of Saudi state-owned oil giant Aramco, which will partly reverse the three-decade nationalization of the Middle East’s energy industry that started in 1950. Still, the Adnoc IPO marks only a partial step — the unit operates filling stations in the United Arab Emirates and is far removed from the prized oil fields that generate the region’s extraordinary wealth. Adnoc already has crude development partnerships for its fields and is seeking to renew its biggest offshore concession.

Dividend Appeal

Adnoc may seek a value of $10 billion to $14 billion for the distribution unit, according to people familiar with the matter. The business posted earnings before interest, tax, depreciation and amortization of 2.1 billion dirhams ($573 million) last year, according to Adnoc, suggesting a price-to-earnings ratio of up to 25 times.

While the lack of similar listed companies in the region and its position as a state-owned monopoly make valuation difficult, that would be a very high ratio by global standards. Based on rule-of-thumb metrics of Ebitda-to-valuation for comparable companies, a value closer to $5 billion might be more appropriate.

One possible positive for the valuation is the high-dividend policy promised for the next two years: Adnoc told prospective investors it planned to pay shareholders $400 million in both 2018 and 2019. There will also be an additional one-time payout of $200 million next April, the company said. If investors price the stock at a 5 percent dividend yield, the valuation would be about $8 billion.

Middle Eastern investors are traditionally attracted to dividend stocks, so the IPO could prove popular among regional investors who have endured years of low yields in bond and equity markets.

‘Positive Perception’

Since becoming CEO in early 2016, Al Jaber has slashed jobs and opened up the business to fresh partnerships with foreign oil companies, potentially expanding on previous collaborations with some of the world’s largest energy firms, including Exxon Mobil Corp. and BP Plc. The company is also merging its shipping businesses and weighing plans to set up an energy-trading unit as it seeks to revamp.

With global crude prices at about half their 2014 average, international energy companies and state producers alike are seeking to trim costs and boost efficiency. Adnoc pumps most of the crude in the U.A.E., a member of the Organization of Petroleum Exporting Countries with about 6 percent of global reserves.

“Adnoc finds the industry to be very strong,” Al Jaber said. “We have a very positive perception of the future.”

All shares offered will represent the sale of existing stock held by the company, with at least 10 percent of the shares to be sold, Adnoc said in a statement. The shares would start trading on the Abu Dhabi Securities Exchange in December, according to the plan.

Adnoc Distribution is completing the required approvals, and the offer price for the sale will be determined through a book-building process. The IPO will be available to individual and other investors, and 5 percent of the shares will be reserved for offer to the Emirates Investment Authority.

Adnoc said that the IPO will be coordinated by Citigroup Inc., First Abu Dhabi Bank PJSC, HSBC Bank Plc and Merrill Lynch International. EFG-Hermes U.A.E. Ltd., Goldman Sachs Group Inc. and Morgan Stanley are acting as joint bookrunners for the offering.

— With assistance by Javier Blas, Shaji Mathew, Hussein Slim, Fatma Abusief, Salma El Wardany, and Wael Mahdi



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