Abu Dhabi to create a new regional utilities champion

Taqa will become one of the largest listed companies on the ADX after Dh120bn transfer of assets from ADPower

ADPower will own 98.6 per cent of Taqa shares following the deal, but a follow-on share offer could be made to broaden the company's investor base. Courtesy Taqa

Abu Dhabi Power Corporation submitted an offer to transfer most of its assets to the Abu Dhabi National Energy Company, or Taqa as the company is known, in a deal that will create a new regional utilities champion.

ADPower owns most of the power and water assets in the emirate. Under the terms of the offer made to Taqa's board, ADPower will transfer the majority of its water and electricity generation, transmission and distribution companies, which together had total assets of approximately Dh120 billion at the end of 2018 and a cumulative net profit of Dh4.8bn.

The transaction will allow the joint entity to have a "strong platform for new projects locally and internationally," ADPower chief executive Jasim Thabet told The National in an interview.

The transaction is intended to transform the utilities sector in the UAE, the companies said on Monday.

"The rationale behind this transaction is we're combining assets as Abu Dhabi Power Corporation and we'll transfer the majority of its water and power generation, transmission and distribution assets to Taqa to create a utility champion comparable to global sector leaders," said Mr Thabet.

He declined to comment on the combined capex of the entity and whether Taqa, which has significant oil and gas assets outside the UAE, would consider spinning off those units.

If ADPower's transfer of its water and electricity assets to Taqa is successful, "it would greatly enhance Taqa’s asset portfolio because it will add transmission and distribution assets to its generation assets thereby creating a monopoly integrated utility in the Emirate of Abu Dhabi with total assets of around Dh200bn", which would be credit positive for the company, said Thomas Le Guay, an analyst at ratings agency Moody’s.

“The additional assets would improve the stability and predictability of Taqa’s cash flows, and dilute the company’s exposure to its poorly-performing oil and gas assets. The new assets would also help Taqa diversify its energy generation mix, which is currently predominantly focused on gas assets. Further, the new assets would entrench Taqa’s dominance over electricity generation in Abu Dhabi and help reduce longer-term uncertainties related to contract expiry.”

ADPower is a public stock company that owns several power and utility subsidies. The merger of assets with Taqa is part of ongoing efforts in the UAE capital to consolidate assets, which has seen large-scale mergers in the banking and finance industry following the slide in oil prices in 2016.

“This is part of a region-wide trend for government-related entities to inject their assets into public markets," said Ryan Lemand, senior executive and board director at ADS Investment Solutions.

"The transaction will give equity investors greater access to key utilities in Abu Dhabi. It serves to deepen the pool of listed assets on the Abu Dhabi Securities Exchange, and the next step could be to increase the free float of various listed companies, including Taqa," he added.

The deal would make the new entity one of the top utility companies in the Europe, Middle East and Africa region and also make Taqa one of the largest listed companies on the Abu Dhabi stock market.

“The proposed transaction is an integral part of Abu Dhabi’s overall strategy to optimise performance across the water and electricity sector and to further support the growth of the UAE capital markets," said ADPower chairman, Saif Al Hajeri.

This would be the first time an integrated utilities company will be brought to the UAE public market, he added.

The deal is being structured through the transfer of ADPower's assets to Taqa and the termination of a land agreement. In return, Taqa will issue 106.3bn shares to ADPower, which means that once complete, AD Power will own 98.6 per cent of Taqa's entire share capital. It values Taqa at about Dh4.16bn.

The combined entity will have total assets worth Dh200bn, with more than 85 per cent of its revenue coming from regulated and contracted businesses, the companies said.

ADPower was in the process of finalising three projects — a new 2.4 gigawatt combined cycle power plant in Fujairah, a 2GW solar photovoltaic scheme in Abu Dhabi and a 200 million Imperial Gallon per day desalination project in the UAE capital.

The transaction is expected to close in the second half of 2020 following regulatory approvals.

Citigroup and Rothschild are financial advisers to ADPower, while Allen & Overy is the legal adviser.