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UAE’s ADNOC has said a further share sale in its natural gas subsidiary, ADNOC Gas, can create “significant value”.
The statement follows recent media reports that the state-backed energy major is considering selling a further 3-5% stake in its gas unit.
Although ADNOC did not confirm the plan, the oil giant said it sees “significant value creation potential in ADNOC Gas, which could be further enhanced by broader indexation, driving liquidity and shareholder base diversification. This would require a higher free float at current market capitalization levels.”
Inclusion in global indices makes stocks visible to investors across international markets and attract passive fund flows from institutional investors who track the indices.
Jaap Meijer of Arqaam Capital said a secondary offering of 2.7% stake would guarantee an MSCI inclusion and $338 million inflows, while a secondary offering of 2% guarantees a FTSE inclusion and $115 million inflows.
“In the case of a 2.7% stake sale, we estimate a total of $467 million passive inflows and $1.48 billion total inflows (active + passive), absorbing 75% of the selling pressure,” he said in a note.
In September, ADNOC Drilling was added to MSCI’s flagship indexes including MSCI EM, and MSCI UAE, following a secondary sale. ADNOC raised $935 million in May by selling a 5.5% stake in its drilling unit to institutional investors, more than two years after the IPO.
Neetika Gupta, head of research at Ubhar Capital in Muscat, said ADNOC Gas seems to be following the route of ADNOC Drilling.
“ADNOC Drilling secured inclusion in the MSCI EM and MSCI UAE indices post the secondary offering. $316 million in new investments came into ADNOC Drilling on August 31 where entry formally happened at market close. The stock has since then returned 22% in terms of share price appreciation, well supported by strong Q3-24 quarterly performance,” she told Zawya.
The overall idea behind the potential secondary offering for ADNOC Gas is to help raise liquidity and widen the shareholding base, she added.
“Currently, ADNOC Gas has a free float of 4.8%. The sale will increase ADNOC Gas’s free float, potentially resulting in its inclusion in broader market indices.”
ADNOC sold a 5% stake in the gas unit in early 2023, netting $2.5 billion.
Gupta said improved liquidity with more shares available to trade could trigger inflows from passive funds tracking benchmark indices such as MSCI and FTSE Russell.
Citi’s Oliver G Connor in a recent note said that the report that ADNOC is considering to farm down 3-5% ($3.6 billion at the upper end) of its current 95% stake in ADNOC Gas, aligns with the broader strategy of ADNOC follow-ons.
“As the smallest percentage free float of the ADNOC entities, this brings an opportunity to improve liquidity and a step towards MSCI index inclusion (and the benefit of passive flows) as ADNOC Drilling achieved,” said Connor.
(Reporting by Brinda Darasha; editing by Seban Scaria)
