Adnoc plans 5.5% additional stake sale in drilling subsidiary to raise capital

Increasing the free float is expected to help Adnoc Drilling get into the MSCI Emerging Market Index

Adnoc Headquarters, Abu Dhabi. Adnoc plans to sell part of its Adnoc Drilling stake to institutional investors for liquidity and capital. Victor Besa / The National

Adnoc, the majority shareholder in Adnoc Drilling, plans to sell a portion of its ownership in the subsidiary to institutional investors to boost liquidity and raise capital for the parent company.

The Abu Dhabi-based energy company will offer about 880 million ordinary shares, representing about 5.5 per cent of Adnoc Drilling’s issued and outstanding shares, through a bookbuild offering to certain eligible institutional investors, Adnoc said on Wednesday.

At Adnoc Drilling’s last closing price of Dh4.13, the offering is valued at Dh3.63 billion ($988 million).

The bookbuilding process, which will commence immediately, is expected to end on May 23, 2024, but this date might change if there is a need to accelerate the offering, the company said, adding that the final terms of the offering would be announced following its completion.

This additional stake sale is taking place more than two years after Adnoc raised $1.1 billion from an IPO of its drilling unit.

“Since its [initial public offering] in October 2021, Adnoc Drilling has delivered exceptional growth and superior shareholder returns including a recent dividend policy upgrade,” said Khaled Al Zaabi, group chief financial officer at Adnoc.

“As a committed, long-term majority shareholder, this offering aligns with Adnoc's strategic objectives to enhance the liquidity and free float of Adnoc Drilling, diversify its shareholder base and supports value creation,” Mr Al Zaabi said.

The offering will consist exclusively of shares held by Adnoc and allows the company to sell a further stake in Adnoc Drilling. Adnoc has an 84 per cent shareholding in the company.

Increasing the free float is also expected to help Adnoc Drilling get into the Morgan Stanley Capital International (MSCI) Emerging Market Index at the next quarterly review, provided it meets all the inclusion criteria, Adnoc said.

The MSCI Emerging Markets Index is a broad index that includes a large number of stocks from 24 emerging market countries, covering about 85 per cent of the total market capitalisation of these countries.

“MSCI inclusion of Adnoc Drilling would contribute to the diversification of the company’s investor base and significantly broaden awareness of its unique value proposition,” Adnoc said on Wednesday.

“The sale supports Adnoc’s commitment to further strengthen the Abu Dhabi equity capital market while creating sustainable value for shareholders across its listed portfolio.”

Shares in Adnoc Drilling held by Adnoc, which are not sold in the offering, will be locked up for six months from the settlement date.

Adnoc Drilling, the largest national drilling company in the Middle East by rig fleet size, reported a 26 per cent increase in its first-quarter profit last week and said it was awarded a $1.7 billion contract by Adnoc to provide drilling services for the recovery of unconventional oil and gas resources.

The Adnoc subsidiary has also set up a company called Turnwell Industries, which will fulfil the contract and explore potential future opportunities in unconventional resources, the company said last week.

Adnoc, responsible for most of the UAE's crude production, is working to develop its unconventional reserves as it looks to reach an output capacity of five million barrels per day by 2027. It can already produce up to 4.85 million bpd.

Abu Dhabi’s unconventional recoverable oil resources are estimated at 22 billion barrels of very light and sweet crude, comparable with Adnoc’s flagship lower-carbon Murban grade.