Abu Dhabi is simultaneously preparing for an increase in oil and gas demand in the coming years and for the global rise of renewable energy. News has emerged that the emirate is considering the sale of a $4 billion stake in one of the most successful Arab energy companies, TAQA, in order to fund the renewable energy drive of ADNOC. The $4 billion figure comes from the government’s plan to divest 10% of TAQA, also known as Abu Dhabi National Energy Company. News of the possible sale has already pushed TAQA’s market value to $43 billion. Emirati sources expect that international utilities and investors will be interested in a piece of the cake. Non-binding bids are expected in May, with media sources saying that TAQA’s attractiveness increased after the company started to cut its exposure to hydrocarbons while focusing on renewables. TAQA already owns one of the world’s largest solar plants and is building another larger one at present. TAQA and Abu Dhabi government sources declined to comment.
It’s been a busy week for the Abu Dhabi-based company which made headlines on Tuesday after selling $1.5 billion of dual-tranche bonds comprising of seven-year tranche and 30-year Formosa notes. Based on market information, TAQA has sold $750 million of each tranche, with the seven-year paper at 80 basis points over US Treasuries and the 30-year notes at 3.4%. The company has received over $6.5 billion in orders for the debt sale, with a skew towards the conventional seven-year tranche. The bond deal was arranged by Citi and HSBC as global coordinators while Bank of China, First Abu Dhabi Bank, Mashreq, Mizuho, and MUFG were also in on the deal.
In recent weeks TAQA has made it clear that it wants to lead the energy transition in the region and act as a champion for low carbon power and water. It also wants to maintain its position as a fully integrated utility. TAQA has already indicated that it expects to release a follow-on public offering, based on market conditions. The company has already made the decision to allow foreign investors to own up to 49% of TAQA’s issued shares. The current $4 billion government sale discussion is most probably part of that larger plan. In the coming years, TAQA will focus on expanding its power capacity from 18GW to 30GW in the UAE and increasing its international portfolio by 15GW. Other areas of focus will be PV and desalination.
TAQA isn’t the only entity making waves in the UAE, Abu Dhabi’s second-largest sovereign wealth fund Mubadala has also indicated its desire to move from hydrocarbons to renewable energy and technology. Historically, Mubadala has always been a mainstream oil-gas and energy investor, but it is now clearly shifting to technology, healthcare, and disruptive industries. Mubadala’s CEO Khaldoon al-Mubarak stated that “the $232bn fund’s strategy shift would mean more sell downs in “legacy commodity sectors” either through market listings or private placements, including an initial public offering for Emirates Global Aluminium”. The fund is also planning an IPO for Yahsat, a satellite company set up 14 years ago, and is considering whether to list GlobalFoundries, the US-based chipmaker into which it has pumped billions of dollars over the past decade and which turned its first profit in 2019. The main geographic focus for these investments will be China, due to its high growth potential. In 2020 Mubadala deployed more funds and “monetized” more assets than in 2019 when it invested $18.5bn and raised $17bn through divestments. The shift to non-energy or commodity-related sectors is striking, as the Emirate targets to be a center for tech hubs in the future. This year, Mubadala formally switched its core areas of investment from petrochemicals, aerospace, and manufacturing to direct investments, disruptive industries, and real estate and infrastructure. It also set up a multibillion-pound “sovereign investment partnership” with the UK last month, pledging £800m to a life sciences fund and a commitment to make similar investments in British tech, green energy, and infrastructure over five years. In the last two years, multibillion-dollar stakes in Spanish energy group CEPSA and chemicals group Borealis have been sold.
The above-mentioned developments fall clearly in line with the vision of Abu Dhabi’s energy leader Sultan Al Jaber, head of ADNOC. The oil and gas titan has clearly embarked on a renewable clean energy strategy. At a conference of Washington-based think tank Atlantic Council, Al Jaber stated that the UAE plans to be at the forefront of the transition to greener energy and the fight against climate change even as it boosts oil-production capacity. He also reiterated that they aim to be a “global leader in producing the maximum amount of hydrocarbons with the least emissions”. ADNOC’s leader indicated that the company will be working to make its barrels the least carbon-intensive in the world. As one of OPEC’s leading oil and gas producers, ADNOC targets to boost output capacity by about a fifth to 5 million barrels a day by 2030.
It remains unclear exactly how successful this dual approach will be. The ongoing drive to monetize hydrocarbon assets and downstream operations should bring an influx of cash to Abu Dhabi. Current development plans, all focusing on renewables and economic diversification, are straightforward but historically diversification plans in the Gulf region have not always been successful. Selling its assets now while it is in desperate need of oil and gas revenues is a risky strategy. Selling some of its assets to ensure they don’t become stranded could be sensible, but they must approach this strategy with care. An overreliance on Chinese markets carries a risk, as it could result in unwanted economic constraints in the future. Profit margins of renewables are definitely not going to bring the revenues that rentier states currently require, and jump-starting high-tech hubs in the desert is far from a certainty. Abu Dhabi’s ambitions are certainly respectable, but plenty of question marks remain over how successful its strategy will be.