GIC, NH Investment group takes US$10 billion stake in Abu Dhabi pipeline
Biggest energy infrastructure deal of 2020 seen as stepping stone for Korean investors
1 Jul 2020 | Michael Marray

An investors consortium that includes Singaporean sovereign wealth fund GIC and NH Investment & Securities of South Korea has acquired a 49% stake in Abu Dhabi's natural gas pipeline network for US$10.1 billion.

The Abu Dhabi National Oil Company (Adnoc) spun out its midstream pipeline assets into a new company, Adnoc Gas Pipeline Assets (Adnoc Gas Pipelines). It then agreed to sell shares to Global Infrastructure Partners, Brookfield Asset Management, GIC, Ontario Teachers’ Pension Plan Board, NH Investment & Securities, and Italy’s Snam.

The newly created pipeline company has a 982.3-kilometre network taking gas produced by Adnoc to local customers in the United Arab Emirates. It holds leasing rights to the 38-pipeline network for 20 years.

The sale of shares has put a valuation of US$20.7 billion on Adnoc Gas Pipeline Assets, in which Adnoc will continue to hold a 51% stake.

This is the biggest global energy infrastructure deal so far in 2020. Bank of America Securities, First Abu Dhabi Bank and Mizuho Securities acted as financial advisers to Adnoc, while Moelis & Company acted as its independent financial adviser.

NH Investment & Securities is one of the biggest wealth managment, brokerage and investment banking groups in South Korea. Over the past five years, it has invested heavily in global real estate and infrastructure assets.

“Investing into Adnoc's gas infrastructure and supporting Abu Dhabi's energy initiatives reinforces our investment diversification strategy, and demonstrates Korea's growing presence in the global infrastructure space," says Young-Chae Jeong, chairman & CEO of NH Investment & Securities. "I am confident this milestone transaction can become a stepping stone to broaden Korean investments in the region.”

New York-based Global Infrastrucure Partners (GIP) has grown to be one of the world’s largest infrastructure investors and currently manages US$74 billion in assets.  

GIC manages the Singapore government’s foreign reserves and has also been stepping up its infrastructure investments in the search for yield. Recent deals include acquiring the US$950 million pan-European logistics real estate platform Maximus and paying 8 billion yuan for the LG Twin Towers buildings in Beijing's Guomao Central Business District.

New York-based Brookfield is an alternative asset manager with over US$515 billion in assets under management. Ontario Teachers' Pension Plan had US$151 billion in assets as of December 2019. Snam, one of the biggest listed companies in Italy, operates the largest natural gas transmission and storage network in Europe. It is the only industrial operator in the investment group. 

Adnoc says that the transaction structure allows it to tap new pools of global institutional investment capital.

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 tariff will be charged on the total volumes transported through the pipelines, together with liquefied natural gas flows, from Adnoc's upstream assets to Abu Dhabi’s key outlets and terminals.

The new subsidiary will distribute 100% of free cash to the investors in the form of quarterly dividends. Majority ownership of the pipelines, management of pipeline operations, and all responsibility for associated operational and capital expenditures will remain with Adnoc.

For the investor group, the deal gives them a stake in high-quality energy infrastructure assets, with a low-risk profile, that generate stable cash flows.

"This milestone transaction demonstrates the trust and confidence placed in Adnoc by the global investment community and unlocks significant value from our pipeline portfolio following last year’s groundbreaking oil pipeline infrastructure investment partnership,” comments Sultan Al Jaber, Adnoc group chief executive and UAE Minister of State.

The deal is the largest transaction since Adnoc announced the expansion of its partnership and investment model in 2017, which is aimed at unlocking value. Since then, ADNOC has entered the debt capital markets for the first time, issuing a US$3 billion bond backed by the Abu Dhabi Crude Oil Pipeline; partially floated Adnoc Distribution, the first-ever IPO of an Adnoc Group company; and entered into several strategic partnerships in its drilling, refining, fertilizer and trading businesses.

Adnoc has struck a series of strategic equity partnerships across its value chain in the last 18 months.  In February 2019, Adnoc signed a US$5 billion deal under which BlackRock, KKR, and the Abu Dhabi Retirement Pensions and Benefits Fund (ADRPBF) acquired a 40% stake in its newly created entity Adnoc Oil Pipelines. This is similar to the gas pipelines deal, with the company holding a 23-year lease on the network of offshore and offshore crude oil and condensate pipelines.

The UAE holds the world’s sixth-largest natural gas reserves. Adnoc's gas strategy aims to meet in-country gas demand and support the UAE in achieving gas self-sufficiency. The UAE gas market is primarily driven by domestic utilities and growing industrial production, in addition to the demand created by Adnoc's own upstream and downstream activities.

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