Adnoc evaluating potential bond issue amid record low-interest rates

The national oil company has a stand-alone AA+ rating from Fitch

Adnoc chief executive Dr Sultan Al Jaber said the company was open to additional investment opportunities Leslie Pableo for The National

Abu Dhabi National Oil Company is evaluating a potential bond issue, taking advantage of record-low interest rates as the company looks at additional investment opportunities, particularly in the downstream sector.

“Anyone who is not issuing with these interest rate levels is making a big judgment call …. these are extraordinarily low rates”, Adnoc chief financial officer Mark Cutis told a Bloomberg capital markets conference in Abu Dhabi.

Concerns about the weakness of the global economy have led central banks around the world to cut rates, with the US Federal Reserve last month cutting its headline rate for the second time in three months.  Lower rates reduce borrowing costs for bond issuers.

"Yes, we will do a bond, of course, we will," he told reporters later, noting that the company will proceed when the time is right.

He declined to comment on the possible size of the bond.

Regional national oil companies have tapped the bond markets to allow for greater financial flexibility to pursue new ventures, especially in refining and chemicals. Saudi Aramco issued its first $10 billion (Dh36.7bn) bond earlier this year, to help finance its $69bn acquisition of petrochemicals company Saudi Basic Industries Corporation. Orders for Saudi Aramco's debut bond topped $100bn billion in April, making the order book the largest for an emerging market bond.

A potential bond issue would be the first for Adnoc as a group. Abu Dhabi Crude Oil Pipeline, a subsidiary, issued a $3bn bond in 2017, which received more than $11bn in orders from regional and international investors.

The issuance marked the first time that the state oil company tapped the international debt markets, as it looked at new fund-raising options to unlock value across infrastructure assets and optimise its capital structure to fund new projects.

Adnoc, which has a stand-alone AA+ rating from Fitch — the maximum given to an energy company — is also exploring partnerships and possible sales of stakes across its subsidiaries.

"So we're always looking for partnerships, the difficulty is finding groups to work with that blend together well," said Mr Cutis.

Adnoc listed a minority stake of its distribution business on the Abu Dhabi stock market in 2017 in the first-ever initial public offering for the company.

Mr Cutis said the sale of a further stake in the unit — the largest fuel retail business in the UAE — is also being considered but there was nothing immediate planned.

"We're always looking at these things, the door is open, we're interested in ideas," he told reporters.

Earlier, Adnoc group chief executive Dr Sultan Al Jaber said the company was open to additional investment opportunities that provided "an attractive risk-reward profile to high-quality long-term investors".

"These investments will allow Adnoc to access cost-effective liquidity [and] finance higher return activities. The door is very open for additional investments to create a fully integrated derivatives and manufacturing hub that will feed the fast-growing demand for high-value add products worldwide," he told the conference.

The company is leveraging its AA+ rating, which is higher than the sovereign rating for the government of Abu Dhabi, the company's sole shareholder, to "optimise" its balance sheet, Dr Al Jaber said.

Since last year, the state-owned producer has embarked on an ambitious investment strategy to enhance its refining and chemicals portfolio as it looks to earn more revenue from the sale of higher-value products, particularly in the East. Adnoc, along with its partners, is looking to invest Dh165bn in the downstream sector over the next five years, which includes plans to double its refining and triple its chemical capacities.

Following the development of a new 600,000 bpd refinery, refining capacity is expected to increase to 1.5 million bpd, rivalling India’s 1.24 million bpd at the Jamnagar refinery, currently the world’s biggest.

The national oil company also plans to develop a six square kilometre derivatives and conversions park that will be integrated with the larger complex. The park will use feedstock from Adnoc's facilities in Ruwais and produce higher-value products from chemicals such as packaging materials, coatings, flooring, high voltage insulation and automotive composites.

The company will also build a conversion park spread over 3.5 square kilometres that will include industry clusters which make use of the derivatives produced in adjoining facilities.