ADNOC Sells $10B Stake in Pipelines

(Bloomberg) -- Abu Dhabi sold a $10.1 billion stake in its natural-gas pipelines to a consortium led by Global Infrastructure Partners, in the biggest infrastructure acquisition so far this year.

The investors, including Brookfield Asset Management Inc. and Singapore’s sovereign wealth fund, will buy a 49% holding in a new subsidiary for the pipelines from Abu Dhabi National Oil Co., which will retain the rest of the shares, the state-owned energy producer said in a statement Tuesday.

Infrastructure has been one of the few bright spots for dealmakers since the coronavirus outbreak led to a sharp downturn in mergers and acquisitions. The volume of such deals increased in the first quarter by almost 20% year-on-year to $81 billion, according to data provider Preqin.

The Adnoc transaction values the pipelines at $20.7 billion. It surpasses KKR & Co.’s agreement in March to buy the waste-management arm of U.K. utility Pennon Group Plc for 4.2 billion pounds ($5.2 billion), and Portuguese oil company Galp Energia SGPS SA’s plan to sell its gas-distribution assets for as much as 1.5 billion euros ($1.7 billion).

The pipelines deal will bring cash into Abu Dhabi, the capital of the United Arab Emirates, as it grapples with this year’s almost-40% plunge in crude prices. It’s the largest transaction in the emirate’s three-year push to use energy assets to attract foreign direct investment.

“Given the global economic climate, it is a great endorsement of Adnoc and the UAE’s world-class assets,” Adnoc Chief Executive Officer Sultan Al Jaber said in an interview with Bloomberg Television.

As well as GIP, Brookfield and Singapore’s GIC Pte, the consortium comprises Ontario Teachers’ Pension Plan, NH Investment & Securities Co. of South Korea and Italian gas-network operator Snam SpA.The 38 pipelines involved in the deal span almost 1,000 kilometers (621 miles). Adnoc will lease the network for 20 years and pay a tariff based on the amount of gas it transports through it. The subsidiary, Adnoc Gas Pipeline Assets, will distribute all its free cash to the investors through quarterly dividends.

Abu Dhabi has been opening up its energy industry as it tries to generate additional sources of funding. Adnoc has sold shares in its distribution unit and brought international investors into its refining and oil-field servicing arms. KKR and BlackRock Inc. agreed last year to invest $4 billion in Adnoc’s oil pipelines. GIC later bought a stake in the business.

Those earlier steps to raise cash, along with efforts at cutting costs, make Adnoc “far stronger and better positioned to manage the current market dynamics and price fluctuations,” Al Jaber said.

Terms of the Deal

Investors to hold 49% of newly formed Adnoc Gas Pipeline Assets LLC; government-owned Adnoc to own the rest Unit to lease 38 pipelines stretching 982 kilometers from the state energy producer for 20 years; pipeline network links Adnoc fields with export terminals and local fuel buyers Adnoc to pay pipeline unit a tariff based on volume of gas transported Adnoc will still manage operations and capital expenditure

Abu Dhabi isn’t the only Persian Gulf oil producer selling energy assets. Saudi Arabia listed shares in Saudi Aramco for the first time in December. The company, the world’s largest oil exporter, has also asked advisers to study a sale of part of its pipeline unit.

Adnoc was advised by Bank of America Corp., First Abu Dhabi Bank PJSC, Mizuho Financial Group Inc and Moelis & Co.

The buyers are seeking a loan of about $8 billion to fund the transaction, Bloomberg reported in April.

--With assistance from Bruce Stanley.