Abu Dhabi National Oil Company's drilling subsidiary has announced plans to float 7.5 per cent of its shares on the Abu Dhabi Securities Exchange.
Adnoc Drilling shares are expected to start trading in October, subject to market conditions and regulatory approvals in the UAE, the company said on Monday. Adnoc can increase the size of the public offering at any time before pricing of the deal.
The pricing will be determined through a bookbuilding process, the company said, without giving a date.
US energy services company Baker Hughes, which has a 5 per cent stake in Adnoc Drilling, will retain its shares. Adnoc will remain the majority shareholder following the initial public offering.
The share offer is available to individual and other investors, Adnoc Group employees and retirees of the national oil company as part of the retail offering, as well as to qualified international investors. Five per cent of the offer is reserved for the Emirates Investment Authority.
"This highly compelling offering, in a company with a robust growth trajectory and attractive dividend policy, is open to all citizens and residents of the UAE in addition to international and local institutional investors," said Dr Sultan Al Jaber, Minister of Industry and Advanced Technology and managing director and group chief executive of Adnoc.
"Building on the highly successful listing of Adnoc Distribution in 2017, this offering marks another significant milestone in Adnoc's ongoing journey in unlocking and maximising value across our integrated asset base," he added.
Adnoc Drilling is one of the largest drilling companies in the Middle East, operating 107 onshore, offshore and island rigs, of which 11 are rented. The company, which began operations in 1972, has expanded its fleet of rigs, adding 67 since 2010, in line with the growth in oil and gas production capacity at Adnoc.
This is the second IPO for the Adnoc Group, which listed 10 per cent of the company's distribution business in 2017. Adnoc doubled the amount of its free-floating stock to 20 per cent in September last year following a block placement of 1.25 billion shares, valued at $1 billion, with institutional investors.
The IPO of its drilling unit will also allow Adnoc to “more actively manage and optimise its portfolio of assets and create new investment opportunities across its business, increase trading liquidity in the shares and raise its profile with the international investment community”, the company said.
The listing of 7.5 per cent of Adnoc Drilling's shares will raise the free float market cap of the ADX by $750 million and add $10bn to the market cap, equivalent to 2.6 per cent of the total market cap of ADX, according to Jaap Meijer, managing director, head of equity research at Arqaam Capital.
"This further deepens and diversifies the Abu Dhabi stock market. This follows the listing of 1.8 per cent of Aramco by the end of 2019," he said.
"We expect further IPOs for Abu Dhabi and the region in general as the equity climate remains healthy, helped by the reopening of economies, higher oil prices, which will trickle down to increased government spending and relaxation of immigration laws."
The Abu Dhabi stock exchange has experienced record trading performance, helping to boost its market capitalisation beyond Dh1 trillion ($272bn).
"The second quarter this year saw record volumes, with the average range of Dh300m-plus," said Vijay Valecha, chief investment officer at Century Financial.
"Increased participation by retail investors is prompted by the various initiatives undertaken by the exchange houses to boost liquidity in the region to fulfil its aim to more than double the bourse’s market capitalisation over the next three years."
Adnoc Drilling's net profit for the first half of 2021 reached $281.6m with revenue hitting $1.12bn. The company plans to pay out its first dividend in April next year after the listing, with subsequent tranches set for October every year.
Adnoc Drilling will offer a fixed dividend of $325m for the second half of 2021.
The company expects to grow its dividend amount at 5 per cent annually over the next five years, from $650m.
The dividend policy reflected "cash flow and its expected long-term earnings potential", Adnoc Drilling said in its disclosure to the ADX.
The company has drilled over 9,600 wells across an area of 19,960 square kilometres, to support oil and gas production onshore and offshore the UAE. Adnoc plans to raise production capacity to 5 million barrels per day by 2030. The company drilled an additional 286 wells in the first half of the year.
"As the sole provider of drilling rig hire services and rig-related services to Adnoc Group on agreed contractual terms, we will continue to play a critical role in enabling Adnoc to deliver on its 2030 crude oil production capacity target of 5 million bpd and achieving gas self-sufficiency for the UAE," said Abdulrahman Al Seiari, chief executive of Adnoc Drilling.
"We look forward to welcoming our new shareholders to share in the growth of Adnoc Drilling."
First Abu Dhabi Bank, Goldman Sachs, HSBC Bank Middle East and JP Morgan Securities are the joint global co-ordinators for the offering. EFG-Hermes UAE, Emirates NBD Capital, International Securities, Merrill Lynch and Société Générale are joint bookrunners.
First Abu Dhabi Bank is the lead receiving bank. Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank and Emirates NBD Bank are receiving Banks. Moelis & Company will act as an independent financial adviser in the IPO.