Oil crown jewels no longer banned in the Middle East

It was about time the petrostats in the Middle East refrained from using their crown jewels to raise funds from foreign investors.

No more. Within weeks, Saudi Arabia, the United Arab Emirates, Qatar, Oman and Kuwait all accelerated their multibillion-dollar plans to sell energy assets or issue bonds on their backs. To cap this trend, Saudi Crown Prince Mohammed bin Salman said last week that the kingdom was in talks with an unidentified “global energy company” to sell an estimated $ 20 billion stake in the company. state oil company Aramco.

The change highlights how countries in a region that is home to nearly half of the world’s oil reserves are capitalizing on the recovery in energy prices after the coronavirus crash last year to bolster their struggling finances. The global transition to greener energy only adds to the urgency, as governments need new funds to invest in new sectors and diversify their economies. And investors, hampered by historically low interest rates, are seizing the opportunity.

“It makes sense for these countries to sell stakes when valuations are good,” said Justin Alexander, chief economist at MENA Advisors, a UK-based consulting firm. “Part of it is tax. In part, this is a growing recognition of the speed of the energy transition and the need to add value to these assets. “

Middle Eastern oil exporters saw their budget deficits climb to 10.8% of gross domestic product last year, from just 3% in 2019, according to the International Monetary Fund. GDP in Saudi Arabia, the United Arab Emirates and Qatar fell the most in about three decades.

Aramco, Adnoc IPOs

Saudi Aramco, the world’s largest producer of crude, and Adnoc, which pumps almost all of the UAE’s oil and gas, have been the region’s most active state-owned companies. The two began privatizations before the pandemic, with Aramco listing on the Riyadh Stock Exchange in 2019 and Adnoc having sold part of the fuel distribution business at the end of 2017, also through a initial public offering.

Transactions have since increased in number and sophistication – as has the emphasis on foreign currency. Aramco said last month that a US-led group would invest $ 12.4 billion in its pipelines. Its next deal could be a share offer in its natural gas network. For its part, Adnoc is planning IPOs for drilling and fertilizer units. These would follow a series of deals from June 2020 that saw companies like Brookfield Asset Management Inc. and Apollo Global Management Inc. invest around $ 15 billion in the gas pipelines and real estate of the Abu Dhabi-based company. .

Prince Mohammed, the de facto ruler of Saudi Arabia, sees Aramco as a key part of his Vision 2030, the grand scheme designed to boost everything from tourism to investments in solar parks and pharmaceuticals. Sheikh Mohammed bin Zayed of the United Arab Emirates has similar ideas for Adnoc and, in March, gave himself more control over the business than he is shaking to make more money.

In the whirlwind of activity, companies have been careful to structure transactions in such a way that they do not lose control over reputable assets. When subsidiaries are sold, they keep most of the shares. With the pipeline deals, Aramco and Adnoc offered lease rights over decades rather than direct equity. Boutique Wall Street Moelis & Co. Bank acts as an advisor to both companies.

“National Gulf oil companies have realized they can sell off pieces of their empire, raising cash without giving up control,” said Ben Cahill, senior researcher at the Center for Strategic and International Studies in Washington. “For businesses and governments, it’s a great combination.”

Elsewhere in the Gulf, Qatar Petroleum and Omani state-owned companies such as OQ SAOC plan to tap the dollar bond market for the first time. Qatar Petroleum is seeking up to $ 10 billion to increase its liquefied natural gas export capacity.

Sales of assets and debts are expected to account for the lion’s share of future deals, according to Hasnain Malik, head of equity research at Tellimer, a London-based company that provides analysis in emerging markets.

For now, foreign investors, who have rarely had such a range of options for investing their money in Middle Eastern oil and gas, seem happy to land the money.

“There is definitely more to come,” Cahill said. “National oil companies are watching each other and finding new tricks.”

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