The United Arab Emirates’ bumper gas listing inevitably invites comparisons with Saudi Aramco. Abu Dhabi National Oil Company (ADNOC) is selling a 4% stake in its gas processing arm to local and international investors through an initial public offering, the biggest one in the Gulf since the Saudi oil giant’s $1.7 trillion market debut in 2019. While ADNOC Gas’s mooted $50 billion valuation is much smaller, foreign investors may find more to like.
ADNOC’s latest listing involves the part of the company which supplies gas to domestic UAE customers, plus the bit that makes chemicals feedstocks like liquefied petroleum gas and its growing presence in liquefied natural gas. As with the five other subsidiaries which ADNOC has listed, including its distribution arm and Borouge, ADNOC Gas comes with juicy shareholder payouts. It expects to pay $3.25 billion in dividends for the full year 2023. Divide that by the average 5.3% yield at which a peer group including ADNOC Drilling, Borouge, ADNOC Distribution, DEWA and SABIC trade, and ADNOC Gas would be worth over $60 billion.
It could fetch more still. ADNOC Gas’s EBITDA for the 12 months to December 2022 is expected to be around $9 billion. With the same Gulf peer group trading on an average of 10 times 2022 EBITDA, that implies a $90 billion enterprise value. And on Aramco’s 4% forecast dividend yield for 2023, ADNOC Gas’s equity would be worth $81 billion.
In one sense, the UAE entity has similar drawbacks to Aramco. With just over 4% of the stock, non-state investors will have as little say in the gas unit’s future strategy as the Saudi giant, where they hold less than 2%. While ADNOC Gas benefits from a 25-year agreement with its parent to provide gas for its needs, ADNOC takes a share of the resulting profit. And just as Saudi Crown Prince Mohammed bin Salman can decide to tax Aramco more if he feels like it, the powers in UAE can do likewise with ADNOC Gas.
That said, with over two-thirds of its gas serving local customers who contribute one-third of its operating profit after tax, ADNOC Gas earnings are arguably more predictable. Gas prices may fall back, but chemicals and LNG look like growth areas, fuelling the company’s expectation that it can grow its dividend by 5% annually to 2027. And the UAE is arguably a more stable regional place to park foreign capital than Saudi. While Aramco shares dropped in the months after its listing, those of ADNOC Gas could prove more resilient.
Abu Dhabi National Oil Company is planning to sell 4% of its new gas business, ADNOC Gas, in an initial public offering in Abu Dhabi. The offering is set to be open from Feb. 23 to March 2 for investors.
ADNOC Gas envisages an equity valuation of at least $50 billion, people familiar with the situation told Reuters Breakingviews.
Shares are expected to begin trading on March 13.
