Potential IPO of Adnoc's distribution unit could support growth strategy

Adnoc is considering the sale of a stake to the public in its Adnoc Distribution unit, which includes more than 300 service stations throughout the UAE.

According to a Bloomberg report yesterday, quoting people familiar with the matter, an initial public offering (IPO) of shares in Adnoc Distribution could value the company at up to US$14 billion, making it potentially the largest transaction on local equity markets since the DP World listing in 2007.

As reported in The National on Monday, Adnoc's new corporate strategy includes the consideration of the public flotation of shares in select service business units as part of a broader plan to more actively manage its portfolio of assets and form new partnerships. That is expected to unlock value, create and grow revenue streams, and foster entrepreneurship within the organisation as well as in the broader economy.

Selling shares to the public - both to individuals as well as institutions, such as pension funds - also is aimed at nurturing Abu Dhabi’s capital markets.

An Adnoc spokesperson yesterday said that it “will update the market on its plans in due course” but it is understood that the timing of a listing on the Abu Dhabi Securities Exchange (ADX) would be dependent on market conditions, and the company is currently assessing the best way to go about it.

Abu Dhabi so far has taken only small steps toward fostering a retail share-owning culture, and selling shares in the ubiquitous Adnoc service stations is seen as a potential way to generate the kind of enthusiasm seen in, for example, the UK privatisations of the 1980s of businesses like British Telecom that were copied throughout the world.

To extract maximum value, the parent company will almost certainly make shares available to some foreign buyers, as well as local.
An IPO of Adnoc at the group holding level is not on the table.

As such Adnoc is taking a very different path than its neighbouring peer, Saudi Aramco, which is planning to sell 5 per cent of the parent company to the Saudi public and list on at least one foreign exchange.

There are advantages to both approaches, according to renowned oil historian Daniel Yergin. While the "big bang" approach of Aramco serves the Saudi need to jolt its entire economy toward a radical shift in culture, Adnoc's needs are different. A much more selective, portfolio approach allows Abu Dhabi to bring in a wide array of investors to focus on the particular needs of each business unit.

A public share sale of a business that has been recently boosted by the reform of fuel subsidies would be a significant signal, while being relatively easy to accomplish.

This should be helped by significant international investor interest in a potential IPO of a stake in Adnoc Distribution.

According to Khaled Beydoun, managing partner at New York Hedge Fund Riposte Capital, the nature of the business is appealing given it is not so correlated to the price of crude oil “as the network will pocket a margin regardless”.

An IPO of Adnoc Distribution is "interesting for sure but key will be what the real margins can get to”, he said.

Adnoc Distribution was established in 1973, and its service station network covers Abu Dhabi and Sharjah exclusively, while in the rest of the Northern Emirates it has an 85 per cent share. It does not currently operate in Dubai. It also has retail outlets at its service stations and at other locations. Adnoc Distribution also provides liquid propane gas (LPG) for household use in Abu Dhabi and the Northern Emirates.