Abu Dhabi put fuel stations in stock market

The state-run Abu Dhabi National Oil Co. will put a minority stake in its gas station subsidiary up on the local stock market. The company made the announcement on Monday, saying 10 percent of ADNOC Distribution will go onto the Abu Dhabi Securities Exchange pending regulatory approval.

The division operates 360 gas stations and 235 convenience stores across the United Arab Emirates, a federation of seven sheikhdoms on the Arabian Peninsula. The announcement comes as the region’s state-run oil companies look toward stock market offerings to boost their cash.

The biggest of them all is now being considered in Saudi Arabia. The kingdom is considering putting shares in the Saudi Arabian Oil Co., its state-run behemoth known as Saudi Aramco, on the local stock exchange and on one abroad.

According to experts, Abu Dhabi National Oil Co. kick-started a round of privatizations in the Middle Eastern oil industry, saying it will sell shares in its retail fuel stations unit and list them on the local stock exchange.

The government-owned crude producer may sell more than 10 percent in the unit, Abu Dhabi National Oil Co. for Distribution PJSC, Adnoc Chief Executive Officer Sultan Ahmed Al Jaber said Monday in an interview in Abu Dhabi. Adnoc, which sold its first bond last month, is close to closing a loan as it raises funds to expand and will seek partners to help develop businesses like oil production and refining, he said.

“What we’re trying to achieve here are numbers that would show an unprecedented commitment from the international market as well as other local investors to work alongside Adnoc in one of its very important subsidiary companies,” Al Jaber said.

The initial public offering is the first of several expected in the region, most notably that of Saudi state-owned oil giant Aramco, which will partly reverse the three-decade nationalization of the Middle East’s energy industry that started in 1950. Still, the Adnoc IPO marks only a partial step -- the unit operates filling stations in the United Arab Emirates and is far removed from the prized oil fields that generate the region’s extraordinary wealth. Adnoc already has crude development partnerships for its fields and is seeking to renew its biggest offshore concession.

Adnoc may seek a value of $10 billion to $14 billion for the distribution unit, according to people familiar with the matter. The business posted earnings before interest, tax, depreciation and amortization of 2.1 billion dirhams ($573 million) last year, according to Adnoc, suggesting a price-to-earnings ratio of up to 25 times.

While the lack of similar listed companies in the region and its position as a state-owned monopoly make valuation difficult, that would be a very high ratio by global standards. Based on rule-of-thumb metrics of Ebitda-to-valuation for comparable companies, a value closer to $5 billion might be more appropriate.

One possible positive for the valuation is the high-dividend policy promised for the next two years: Adnoc told prospective investors it planned to pay shareholders $400 million in both 2018 and 2019. There will also be an additional one-time payout of $200 million next April, the company said. If investors price the stock at a 5 percent dividend yield, the valuation would be about $8 billion