Abu Dhabi sells $2 billion in bonds despite oil rebound
Abu Dhabi sold $2 billion in seven-year bonds on Tuesday in its first foray into the international debt markets this year, raising cash for state coffers despite a recent rebound in oil prices. The oil-rich emirate sold the bonds at 45 basis points (bps) over U.S. Treasuries. That was tightened from initial guidance of 70-75 bps over Treasuries after the debt sale received over $6.9 billion in orders. The United Arab Emirates, where Abu Dhabi is the capital, was hit hard by the COVID-19 pandemic and last year’s crash in oil prices, but a rebound in global crude demand as economies re-open has reduced the urgency to borrow for budget purposes. “Seven years is the sweet spot in the market right now. A lot of issuers are choosing seven or 12 years because of the macros of rates,” said Zeina Rizk, executive fixed income director at Arqaam Capital, adding some of the funds might end up boosting foreign currency reserves. Citi, First Abu Dhabi Bank, HSBC, JPMorgan and Standard Chartered are joint lead managers and joint bookrunners for the deal, according to a document from one of the banks, seen by Reuters. “This is more of an updating-the-curve kind of issuance. They didn’t have a seven-year paper and hence the curve was being interpolated,” another fund manager said. Brent crude, trading at over $68 on Tuesday, has more than tripled since oil’s crash last year, when Brent fell below $20 a barrel. Abu Dhabi is expected to post a budget deficit of around 43 billion dirhams ($11.7 billion) in 2021 against 37.2 billion dirhams last year, the preliminary prospectus for the new bond offering, reviewed by Reuters, showed. The budget, however, is based on an oil price assumption of about $46 per barrel versus roughly $50 per barrel last year. “This deficit is expected to be funded principally by borrowings,” the prospectus said. Abu Dhabi has become a relatively frequent issuer of U.S. dollar-denominated debt in recent years, and tapped the market three times last year for a total of $15 billion. At the end of 2020, it had $40 billion in outstanding bonds and $3.9 billion in outstanding loans. Outstanding bonds and loans totalled $29.4 billion at the end of 2019, the prospectus showed.
BPCL may sell some stake in IGL, Petronet to shed promoter status
Privatisation-bound Bharat Petroleum Corporation (BPCL) may sell a part of its stake in Petronet LNG and Indraprastha Gas (IGL) to shed its promoter status to obviate the need for its new owner to make open offers for the two gas companies, sources said. BPCL holds 12.5 per cent of shareholding in India’s largest liquefied natural gas importer, Petronet, and a 22.5 per cent stake in city gas retailer, IGL. It is a promoter of both the listed companies and holds board positions. As per the legal position evaluated by Department of Investment and Public Asset Management (DIPAM) – the department running the process for sale of government’s entire 52.98 per cent stake in BPCL – the acquirer of BPCL will have to make an open offer to the minority shareholders of Petronet and IGL for acquisition of 26 per cent shares, three sources with knowledge of the matter said. This is because BPCL is a promoter of the two companies and since there is a change in ownership of the promoter firm, an open offer is triggered under Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. A way out could be for BPCL to sell a part of its shareholding in the two firms and shed promoter status, thereby obviating the need for open offers, sources said. BPCL, however, is not in favour of selling the stake and giving up promoter status and directorships will result in substantial value erosion for the company. But the thinking in the government is that the open offers for Petronet and IGL may deter bidders who are mostly eyeing BPCL’s oil refining assets and 22 per cent share of the fuel marketing business it commands, sources said. BPCL spokesperson refused comments for the story. The government’s 52.98 percent stake in BPCL is valued at about Rs 54,000 crore at the current share trading price. The requirement for making an open offer for additional 26 per cent to minority shareholders of the company will cost an additional Rs 26,700 crore. On top of it, an open offer for 26 per cent stake in IGL would cost the acquirer an additional Rs 9,400 crore and a similar offer for Petronet would cost over Rs 9,300 crore. Bidders, sources said, may not find BPCL holding stake in Petronet and IGL a value proposition as such a stake does not give them any special rights such as getting preference in importing of LNG at terminals of Petronet or a say in gas retailing by IGL. They said the option of BPCL selling a part of its shareholding in Petronet and IGL has been discussed during meetings with DIPAM. In those meetings, BPCL management highlighted that the best alternative will be to get Securities and Exchange Board of India (Sebi) to give exemption for open offer to the successful bidder of BPCL as already done when ONGC acquired government stake in HPCL. But in case of ONGC-HPCL deal, the promoters of both the firms were the same i.e. the government of India and there wasn’t a change of ownership per se. Sources said BPCL management also pointed out that the Cabinet Committee on Economic Affairs (CCEA) approval for privatisation of BPCL did not mention any reduction in shareholding in Petronet and IGL. Also, the expression of interest (EoI) floated for stake sale in BPCL also did not mention any reduction in shareholding in Petronet and IGL. On these, DIPAM can approach the CCEA again and get a nod for stake sale in Petronet and IGL, they said. Mining-to-oil conglomerate Vedanta and private equity firms Apollo Global and I Squared Capital’s arm Think Gas are in the race to buy government stake in BPCL. The stake sale in India’s second-largest fuel retailer is crucial to plans to raise a record Rs 1.75 lakh crore from disinvestment proceeds in fiscal 2021-22 (April 2021 to March 2022). BPCL will give the buyer ownership of around 15.33 per cent of India’s oil refining capacity and 22 per cent of the fuel marketing share. The buyer of the company will get 35.3 million tonnes of refining capacity — 12 million tonne Mumbai unit, 15.5 million tonne Kochi refinery and 7.8 million tonne Bina unit. BPCL also owns 18,639 petrol pumps, 6,166 LPG distributor agencies and 61 out of 260 aviation fuel stations in the country. The firm also has upstream presence with 26 assets in nine countries such as Russia, Brazil, Mozambique, the UAE, Indonesia, Australia, East Timor, Israel and India. It is also making a foray into city gas distribution and has licences for 37 geographical areas (GAs).
Russia offers cooperation with Saudi Arabia on hydrogen production
Russian Deputy Prime Minister Alexander Novak on Tuesday offered to work with Saudi Arabia on hydrogen production, speaking during an online meeting of the intergovernmental commission of Russia and Saudi Arabia. “We have a proposal to create a working group on hydrogen energy,” Novak said. Hydrogen has gained traction as the future green fuel of choice, increasingly touted as a way to decarbonise emissions-intensive heavy industry and transportation. Oil and gas rich Russia has been slow in developing production of hydrogen gas, a fuel that emits only water vapor and warm air when burned, rather than carbon dioxide. Saudi Arabia, which plans to diversify the economy, is considering several large-scale project to produce hydrogen. Novak said that both Russia and Saudi Arabia have great potential to develop traditional and renewable sources of energy.
Dutch court to rule on case targeting Shell’s climate strategy
A Dutch court will rule on Wednesday in a landmark case in which climate activists seek to force Royal Dutch Shell to speed its cuts to greenhouse gas emissions. Filed by seven activist groups including Greenpeace and Friends of the Earth Netherlands, the lawsuit marks a first in which environmental groups have turned to the courts to try to force a major energy firm to change strategy. It was filed in April 2019 on behalf of more than 17,000 Dutch citizens who say Shell is threatening human rights as it continues to invest billions in the production of fossil fuels. The case was heard in a court in The Hague, where Shell’s headquarters are based. The groups have said they feel encouraged by the so-called “Urgenda” case, in which the Dutch High Court in 2019 ordered the government to step up its fight against climate change, as it said a lack of action was putting Dutch citizens in danger. They are demanding that Shell cut its carbon emissions by 45% by 2030, a much steeper reduction than the company’s current goal of reducing the carbon intensity of the products it sells by 20% over the next decade. A rapid reduction would effectively force the Anglo-Dutch firm to quickly move away from oil and gas. Shell, which plans to achieve net zero carbon emissions by 2050 or sooner, has said court action will not accelerate the world’s transition away from fossil fuels. The world’s top oil and gas trader, Shell has said its carbon emissions peaked in 2018, but intensity-based reduction targets allow it in theory to expand its oil and gas output. The plaintiffs claim that Shell’s climate strategy is not in line with the U.N.-backed 2015 Paris climate agreement to limit global warming to 1.5 degrees Celsius above pre-industrial levels. Shell says its 2050 net zero target is aligned with the Paris agreement and that it will move “in step” with society’s progress in the energy transition. It said in a statement it agrees “that action is needed now on climate change. What will accelerate the energy transition is effective policy, investment in technology and changing customer behaviour. None of which will be achieved with this court action.” In February Shell updated its plan to tackle climate change, saying it planned to curb its emissions through rapid growth of its low-carbon businesses, including biofuels and hydrogen. Although the company said its oil output peaked in 2019, its spending will remain tilted towards oil and gas in the near future.