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Oil crown jewels are no longer unlimited as offers rise

(Bloomberg) – At this time, the Middle East petrostats withdrew from using their crown jewels to raise money from overseas investors. No more. In a matter of weeks, Saudi Arabia, the United Arab Emirates, Qatar, Oman and Kuwait have accelerated plans to sell power plants or issue billions of dollars in bonds. To limit this trend, Saudi Crown Prince Mohammed bin Salman said Tuesday the kingdom was in talks with an unidentified “global energy company” to sell around $ 20 billion worth of stake in state oil company Aramco. The shift underscores how countries are almost at home in a region.Half of the world’s oil reserves are taking advantage of the recovery in energy prices after the coronavirus-triggered crash last year to bolster their troubled finances. The global transition to cleaner energy only adds to the urgency as governments need new funds to invest in new sectors and diversify their economies. And investors plagued by record lows are seizing the opportunity: “It makes sense for these countries to sell shares when valuations are good,” said Justin Alexander, chief economist at MENA Advisors, a UK-based advisory firm. “Part of it is tax. Part of it is a growing recognition of the speed of the energy transition and the need to extract value from these assets. “The oil exporters in the Middle East recorded an increase in their budget deficits to 10.8% of gross domestic product from just under 3% in 2019, according to the International Monetary Fund. GDP in Saudi Arabia, the United Arab Emirates, and Qatar has shrunk the most in about three decades. Aramco and AdnocSaudi Aramco, the world’s largest crude oil producer, and Adnoc, which produces almost all of the UAE’s oil and gas, were the most active companies in the region. Both began privatizations before the pandemic, with Aramco listed on the Riyadh stock exchange in 2019 and Adnoc sold part of the fuel distribution business in late 2017, also through an IPO. Since then, deals have grown in number and sophistication – as has the focus on foreign money. On April 10, Aramco said a US-led group would invest $ 12.4 billion in its oil pipelines. The next deal could be to offer a stake in its natural gas network. For its part, Adnoc is planning IPOs for drilling and fertilizer units. These would follow a series of deals starting June 2020, with companies like Brookfield Asset Management Inc. and Apollo Global Management Inc. investing approximately $ 15 billion in the Abu Dhabi-based company’s gas pipelines and real estate. Prince Mohammed, de facto Saudi Arabia’s ruler, sees Aramco as a key element of his Vision 2030, the major project that aims to promote everything from tourism to investments in solar parks and pharmaceuticals. Sheikh Mohammed bin Zayed of the United Arab Emirates has similar ideas for Adnoc and gave himself more control over the company in March, which he shook up in order to get more money out of the marquee. When subsidiaries are sold, they keep most of the shares. With the pipeline deals, Aramco and Adnoc offered decades of leasing rights instead of direct equity. The boutique Wall Street bank Moelis & Co. acts as advisor to both companies: “The national oil companies in the Gulf have realized that they can sell parts of their empire and raise money without giving up control,” said Ben Cahill, senior Fellow at the Center for Strategic and International Studies in Washington. “It’s a pretty good combination for businesses and governments.” Elsewhere in the Gulf, Qatar Petroleum and Omani state-owned companies like OQ SAOC are entering the dollar bond market for the first time. Qatar Petroleum is targeting up to $ 10 billion to increase its capacity to export liquefied natural gas. Qatar is among the richest countries in the world per capita, and in the past the government may have funded the $ 29 billion project from its own resources. But it is now trying to reduce a debt burden that rose last year, said Fitch Ratings Ltd. in a report on Monday. By using state-owned companies, the government can protect its own balance sheet. Oman’s PushOman’s OQ sold seven-year Eurobonds worth $ 750 million on Wednesday. Another state-owned company, Energy Development Oman, could follow suit later this year to raise $ 3 billion in debt. The plans are part of a major restructuring of the oil sector since Sultan Haitham Bin Tariq came to power just over a year ago. He tries to attract foreign funding and rejuvenate the ailing economy. In the meantime, the state-owned Kuwait Petroleum Corp. is considering their first international bond. It would be part of a strategy to borrow up to $ 20 billion over the next five years to offset an expected decline in sales. More on ComeAsset and debt sales should account for the lion’s share of future transactions, according to Hasnain. Malik, head of equity research at Tellimer, a London-based company that provides analysis of emerging markets: “Securitizing future cash flows and issuing bonds and selling private equity appears to be a far less onerous way of raising finance from international investors than selling stocks through an IPO, ”said Malik, who has served Middle Eastern markets for more than 20 years. “They rightly recognize that the base for fixed income and private equity investors is larger than that for regional stocks.” Currently foreign investors who rarely seem to have had so many opportunities to invest their money in oil and gas in the Middle East to be happy to raise the money. “There is definitely more to come,” said Cahill. “The national oil companies are watching each other and learning new tricks.” More articles like this can be found at bloomberg.com. 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