The Daily Update - Abu Dhabi Does

As Abu Dhabi continues to move to consolidate its government-related industries (GRIs), we heard that the scale of the “integrated portfolio” of the Mubadala and IPIC merger in January 2017 saw revenues grow by 17% last year. The company reported that revenues were driven by “the strong performance of all four global platforms, with major contributions from upstream & integrated, petrochemicals and the semiconductor business sectors”, adding that the sovereign wealth fund (SWF) took advantage of “reducing leverage while maintaining appropriate liquidity to deploy capital in new investments… we took the opportunity to monetize some of our mature assets which provided a significant return on our original investments, in line with our mandate to deliver financial returns to our shareholder.” As we have previously written, Mubadala and the Abu Dhabi Investment Council are to merge, which would take the combined assets close to USD 250bn and within the top ten world's largest SWFs.

In other news, we also understand that state-owned Abu-Dhabi National Oil Co. (ADNOC) signed a USD 1.5bn deal with Austrian integrated oil and gas company, OMV AG. The agreement will allow OMV to extract crude from the Emirate’s Sateh Al Razboot (SARB) and Umm Lulu oil fields for the next 40 years. OMV now has a 20% stake, 60% of the block is owned by ADNOC, with the remaining 20% held by Cia Espanola de Petroleos SA (CEPSA); incidentally, state-owned Mubadala is the second largest shareholder of OMV (at 24.9%), and wholly owns CEPSA.

The Emirate, which owns 6% of proven global crude reserves and is home to 90% of the UAE’s oil has begun auctioning its untapped reserve blocks, with state-owned ADNOC attempting to expand crude output to 3.5mbpd by the end of this year. And looking to effectively double its 800,000bpd refining capabilities and up its petrochemical production by as much as three times. This deal with OMV in conjunction with the other seven offshore concessions (with the likes of France’s Total SA and China's CNPC) is one further step for ADNOC to further maximise resource returns, maintain control within the UAE and remain a key part of increasing global demand of oil, refined products and petrochemicals.

Highly-rated Abu Dhabi sovereign and quasi-sovereign paper continue to offer attractive risk-adjusted returns. AA rated state-owned Abu Dhabi Crude Pipeline 4.6% 2047, for example, has an expected return of 17.5%, yield of 5% and the market is pricing it as a BBB/BBB- bond; so has sufficient credit notch cushion.

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