PE firms agree $20bn stake in energy investment vehicle

September 2020 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

September 2020 Issue

In what is so far the single-largest energy infrastructure investment of 2020, the Abu Dhabi National Oil Company (ADNOC) has entered into an agreement with a consortium of leading infrastructure investors and operators, sovereign wealth and pension funds to invest in select ADNOC gas pipeline assets valued at $20.7bn.

The consortium, comprising Global Infrastructure Partners (GIP), Brookfield Asset Management, GIC Private Limited, Ontario Teachers’ Pension Plan Board, NH Investment & Securities and Snam S.p.A., will collectively acquire a 49 percent stake in ADNOC Gas Pipeline Assets LLC – a newly formed subsidiary of ADNOC with lease rights to 38 pipelines covering a total of 982.3 kilometres – with ADNOC holding the 51 percent majority stake.

Under the terms of the agreement, ADNOC will lease its ownership interest in the assets to ADNOC Gas Pipelines for 20 years in return for a volume-based tariff subject to a floor and a cap. The transaction will result in upfront proceeds of over $10bn to ADNOC and is subject to customary closing conditions and regulatory approvals.

Furthermore, the innovative structure of the transaction – ADNOC’s largest since announcing the expansion of its partnership and investment model in 2017 – allows ADNOC to tap new pools of global institutional investment capital, while at the same time maintaining full operating control over the assets included as part of the investment.

ADNOC’s gas strategy aims to meet in-country gas demand and support the United Arab Emirates (UAE) – which holds the world’s sixth-largest natural gas reserves – in achieving gas self-sufficiency. Dynamics for the UAE gas market are attractive, driven largely by domestic utilities and growing industrial production, in addition to the demand created by ADNOC’s own upstream and downstream activities.

“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 Sultan Al Jaber, UAE minister of state and chief executive of ADNOC. “This milestone transaction demonstrates the trust and confidence placed in ADNOC by the global investment community and unlocks significant value from our pipeline portfolio.”

ADNOC’s gas pipeline network connects its upstream assets to local UAE off-takers. 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 a unique opportunity to invest in quality energy infrastructure assets with a low-risk profile that generate stable cash flows.

“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 at Ontario Teachers’ Pension Plan Board. “This new partnership with ADNOC and a group of world-class institutional and infrastructure investors expands our global presence and provides further geographic diversification to our portfolio.”

Acting as financial advisers to ADNOC are Bank of America Securities, First Abu Dhabi Bank and Mizuho Securities, while Moelis & Company is acting as an independent financial adviser.

Dr Sultan Al Jaber concluded: “This landmark investment 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.”

Fraser Tennant