Abu Dhabi ended its six-year initial public offering (IPO) drought in December 2017 with the sale of a 10% stake in the downstream distribution arm of the government-owned Abu Dhabi National Oil Company (ADNOC). The sale of the stake in ADNOC Distribution was the largest IPO in a decade on the Abu Dhabi Securities Exchange (ADX) and gave the company a 0.84% weighting on the exchange’s general index.
While this was too small to fundamentally change the structure of the ADX, which remains dominated by banking institutions, the sale was nonetheless a major development. It was 22 times oversubscribed and added 7% to the market value of the ADX. More importantly, the issuance provided proof of concept in a market traditionally wary of undertaking public share offerings and constituted a functional first step for the emirate, as the small size of the sale leaves room for secondary offerings from ADNOC. The successful issuance of the IPO may stimulate similar activity in the energy sector and among state-owned enterprises.
“The ADNOC Distribution IPO story was a success and a good approach. I would like to see more companies like that coming to the public market,” Mohammed Ali Yasin, CEO of domestic broker FAB Securities, told OBG. “It is better to come to the market with a smaller-sized offering and add to it later when the conditions are right.” As a result of the sale, US asset manager Vanguard Group is now the largest foreign investor in ADNOC Distribution, with $41.3m as of May 2018, according to data from Bloomberg; this amounts to a 0.3% stake in the company. Other notable investors include Norges Bank, which manages the Norwegian sovereign wealth fund; UK asset manager Investec; and the South African financial services firm Old Mutual.
The emirate wants to reduce spending and increase the efficiency of government-related entities (GREs). IPOs provide just one tool to achieve this goal. As the leading economic actor, as well as the largest contributor to the federal budget of the UAE, Abu Dhabi is keen to ensure a sustainable fiscal burden in the event of lower oil prices over the long term. To this end, it has been combining several of its investment arms and GREs, with these consolidations serving as either an alternative to IPOs or as a potential precursor to future listings. Some of these GREs have previously been accustomed to receiving budget funding for their activities; however, moving forwards, the emirate is seeking to steer them towards capital markets, either via debt sales or through IPOs. One of the key figures in this process has been the state-owned sovereign wealth fund Mubadala Investment Company. In 2016 the emirate merged another investment arm, the International Petroleum Investment Company, into Mubadala. Furthermore, in March 2018 Abu Dhabi Investment Council was also merged into the firm. As a result of these tie-ups, Mubadala is now the world’s 14th-largest sovereign wealth fund with $220bn in assets under management, including dozens of international firms, and is expected to be a major source of future IPOs. The postponement in October 2018 of the much vaunted 25% IPO in oil refining firm Cepsa, which is owned by Mubadala, provided a short-term setback in the expansion of capital market activities. Nevertheless, Mubadala has announced that it intends to go forward with the IPO in the future.
More to Come
Emirates Global Aluminium, the Middle East’s largest aluminium producer and the second-biggest industrial company in the UAE, has also confirmed its intention to issue a major IPO. While the company – which is jointly owned by Mubadala and the Investment Corporation of Dubai – announced in September 2018 that the IPO had been postponed, it nonetheless highlighted that the IPO would go ahead when market conditions were right. Furthermore, Mubadala announced plans in April 2018 to launch a new real estate investment trust (REIT) incorporating assets from Abu Dhabi Global Market. Upon completion of the REIT, the company plans to carry out an IPO.
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