Previously, Middle Eastern oil countries have not wanted to sell their “jewel in the crown” – energy assets to raise money from foreign investors. Today, however, the situation has changed. In just a few weeks, Saudi Arabia, the UAE, Qatar, Oman and Kuwait have sold energy assets or issued bonds to boost multi-billion dollar programs.
Oil prices collapsed last year when the new crown epidemic broke out. Now the shift suggests that various Middle East oil-producing countries are seizing the opportunity of recovering energy prices to boost weak economies. Governments around the world are turning to greener energy sources because they need new money to invest in new industries and diversify their economies. These energy deals are thus more urgent.
Justin Alexander, principal analyst at MENA Advisors, a British consulting firm, said.
“It makes sense for these countries to sell equity at a good valuation, partly because of finances and partly because of the growing recognition of the speed of the energy transition and the need to realize the value of these assets.”
Last year, the budget deficits of Middle Eastern oil exporters soared to 10.8 percent of GDP from a paltry 3 percent in 2019, according to the International Monetary Fund. Saudi Arabia, the UAE and Qatar saw the largest contraction in GDP in nearly 30 years.
Saudi Aramco is known to be the world’s largest crude producer, and as Golden 10 reported earlier, Saudi Crown Prince Mohammed bin Salman said Tuesday that Saudi Aramco is in talks with an unnamed “global energy company” to sell about $20 billion in shares.
Another move is to restructure state-owned oil companies. Abu Dhabi National Oil Company is also the UAE’s top oil company. It and Saudi Aramco have been the most active state-owned companies in the region, and both were privatized before the outbreak: Saudi Aramco went public on the Riyadh stock market in 2019, and Abu Dhabi National Oil Company sold part of its fuel distribution business through an IPO at the end of 2017.
Since then, the two companies have become increasingly attractive to foreign investors as their foreign deals have become more numerous and their models more sophisticated. On April 10 this year, Saudi Aramco said that an American group intended to invest $12.4 billion in its oil pipeline business; in addition to this, it intends to sell a stake in its gas network. Abu Dhabi National Oil Company, on the other hand, is planning an IPO of its drilling and fertilizer business.
Saudi Arabia’s Crown Prince Mohammed sees Saudi Aramco as a key component of his vision for 2030. “Vision 2030 is an ambitious project that aims to boost everything from tourism to solar parks and pharmaceutical investments. The UAE’s Sheikh Mohammed bin Zayed has similar plans for Abu Dhabi National Oil Company, which he increased his stake in in March and restructured to squeeze more money out of.
Ben Cahill, a senior fellow at the Center for Strategic and International Studies in Washington, said.
“Gulf state oil companies have realized that raising money by selling off a portion while holding control is a good strategy.”
Elsewhere in the Gulf, Qatar Petroleum and Omani state-owned companies, such as OQ SAOC, are planning to enter the dollar bond market. Qatar Petroleum is seeking up to $10 billion in funding to boost its LNG export capacity.
Qatar has one of the highest per capita incomes in the world, and its government had funded $29 billion to support the project, but it is now trying to reduce a debt burden that has increased in the last year. Using the leverage of state-owned enterprises, the government can handle its balance sheet.
Similarly, Oman’s OQ began offering at least $500 million in 7-year Eurobonds on Wednesday, and another state-owned company, Oman Energy Development, may follow OQ’s lead and raise $3 billion in debt later this year.
Kuwait’s state-owned oil company, meanwhile, is planning to issue its first international bond in a bid to borrow $20 billion over the next five years to cover an expected revenue shortfall.
Asset and bond sales are likely to make up the largest share of future deals, said Hasnaan Malik, head of equity research at Tellimer, a London-based emerging markets analyst firm. Malik, who has studied Middle East markets for more than 20 years, said.
“Securitizing future cash flows, issuing bonds and private equity sales seem to be a much easier way to raise capital from international investors than selling equity through IPOs.
They have realized that there are far more fixed income and private equity investors than regional equity investors.”
For now, foreign investors seem happy to invest in Middle East oil and gas, where they rarely have so many investment options. Cahill said.
“There will definitely be more in the future. State-owned oil companies are watching each other and figuring out some new paths.”