The Daily Update - Abu Dhabi's expansion and diversification

As regular readers are aware, we recently added a holding in State-owned Abu Dhabi Crude Oil Pipeline (ADCOP) 4.6% 2047s. Rated Aa2, this bond has performed well since issue, having gained roughly 2.54 points. It continues to offer attractive expected returns, which we calculate at ~17%, with the additional yield of 4.40%; the highly rated bond also offers over 5.7 notches of credit cushion, i.e the market is mispricing the issue as a Baa1/Baa2 credit. We also favour the Emirate's sovereign paper, having added the 4.125% 2047s at issue, and more recently the 3.125% 2027s; rotating out of Saudi Arabia sovereign positions. Both bonds offer in excess of 3 notches of credit uplift, with expected returns and yield of 16.1% and 7.2%, respectively.

Yesterday the ADCOP’s parent, state-owned ADNOC (Abu Dhabi National Oil Co.)  announced a five-year spending plan of AED 400bn (~USD109bn) to expand its refining and petrochemical units internationally. In addition to investing in downstream activities, ADNOC also announced plans to extract and produce “unconventional gas” products within the next five years as “enhanced efficiencies have brought ADNOC’s leading low production costs down even further”.

Also, over the weekend ADCOP said it is taking orders for its touted USD 2bn IPO. The Group’s Chief Executive, Sultan Al Jabeer noted that the IPO will be centered around the evolution of the fuel distribution unit, and hopefully “unlock the inherent value in the business”. According to sources, 1.25-2.5bn shares will be issued between AED 2.35-2.95 suggesting that as much as 20% of the fuel distribution is up for grabs; market valuation is estimated at over USD 10bn. At USD 2bn, this IPO would be the UAE's largest listing in a decade. This will also the first time an Emirate has launched an energy-linked equity issue; which is strange considering the majority of government revenue in the region is generated from hydrocarbon activity.

The final announcement on the deal is expected by December, 8, with the stock expected to begin trading live on the ADX by the following Wednesday. No doubt we will hear from Saudi Aramco following this deal, as Middle Eastern oil giants strive to diversify their economies.

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.