Adnoc IPO of distribution unit set to raise up to Dh3.3bn

Energy company reduces the price range to Dh2.35 to Dh2.65 for the shares of Adnoc Distribution and will now sell only 10 per cent

Adnoc has lowered its price range for its planned IPO of the firm's distribution unit as it looks to expand. Courtesy: Adnoc Distribution

Abu Dhabi National Oil Co (Adnoc) will raise as much as Dh3.31 billion from the initial public offering of its fuel-retailing unit after lowering the top end of the offer price and deciding to only sell a 10 per cent stake.

The energy company reduced the price range to Dh2.35 to Dh2.65 for the shares of Adnoc Distribution, according to terms seen by Bloomberg. The initial price range was Dh2.35 to Dh2.95 and the company had planned to sell as much as 20 per cent. The offering is covered throughout the revised price range, according to the document. The subscription period for UAE investors closes today and, for the institutional tranche, tomorrow.

Adnoc Distribution said last month it plans to open its first petrol stations in Dubai and Saudi Arabia next year as it positions itself for growth following its planned IPO on the Abu Dhabi Securities Exchange this month.

“We intend to leverage the strength of the Adnoc brand and our well-developed fuel distribution infrastructure to continue to expand in our existing markets and to expand into new geographies, including Dubai and Saudi Arabia,” the company said in its prospectus for the IPO.

It currently operates 360 service stations and 235 Oasis convenience stores across the UAE except for Dubai and has a monopoly in Sharjah and Abu Dhabi. Enoc and Emarat are the only operators in Dubai.

Through a franchise model with an identified local partner – as yet unnamed – Adnoc Distribution also expects to begin operating in Saudi Arabia next year.

“We believe we enjoy widespread and favourable name recognition outside of our existing areas of operation, including in Dubai, Saudi Arabia and elsewhere in the [Arabian] Gulf region, which we believe will support expansion,” the company said.

Demand for fuels in Saudi Arabia is on the rise and this year is forecast to be approximately three times higher than in the UAE, according to IHS Markit. Saudi is also a fragmented market without a dominant brand.

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Adnoc Distribution expects to open its first service station in Dubai next year, “and thereafter to continue selectively to open additional service stations”. It anticipates opening approximately 10 to 12 additional service station locations each year over the next five years, with the majority in the Northern Emirates and Dubai.

Adnoc, which pumps most of the crude in the UAE, plans to announce the final pricing for its unit's IPO on December 8, with the stock expected to begin trading on December 13 in Abu Dhabi. The shares would be priced to give investors “a successful after-market performance”, John Carey, Adnoc Distribution’s deputy chief executive, said last week.

IPO activity in the UAE is picking up after only two deals were completed throughout 2015 and 2016. Emaar Properties raised US$1.3bn from the sale of shares in its development unit last month, while Mubadala Investment expects to IPO its Emirates Global Aluminium unit next year.

Adnoc Distribution's latest ambitions to expand into both Dubai and Saudi Arabia follow unsuccessful attempts in the past. An agreement reached in principle in 2015 to acquire 59 Emarat stations in Dubai was abandoned last year.

“There can be no assurance that we will be able to identify suitable locations in Dubai, that we will be able to efficiently supply our service station locations in Dubai, or that we otherwise will be successful in entering, operating and competing against Enoc and Emarat in the Dubai market,” the IPO prospectus said. Both Emarat and Enoc have significant expansion plans of their own in Dubai over the next three years.

Adnoc has never operated under a franchise model before but the approach offers some risk including reputational as well as an opportunity to understand the market without direct investment. Three years ago it had also explored a franchise model in the kingdom, with Al Olaibi Group, announcing plans to open service stations in Riyadh, Makkah and Medina.