Investor bet on Middle East oil play pays off in Abu Dhabi IPO

By Filipe Pacheco and Mahmoud Habboush on 12/13/2017

DUBAI and ABU DHABI (Bloomberg) -- Investors who bet on exposure to Middle East oil got it right, at least on the first trading day of shares in a unit of Abu Dhabi’s oil giant.

The stock of Abu Dhabi National Oil Co. for Distribution PJSC, the fuel retailing unit of Adnoc, soared as much as 16% to 2.90 dirhams in early trading. They pared gains to close 6% higher at 2.65 dirhams in Abu Dhabi. The emirate pumps most of the crude in OPEC member United Arab Emirates.

“It’s interesting for investors to own Adnoc Distribution because forecasts are indicating a rise in oil price, which can increase profit margins,” said Issam Kassabieh, equities analyst at Menacorp Financial Services in Dubai. “The offer was oversubscribed to retail by more than 20 times, and having a local fuel distributor listed will add more transparency to the sector in general.”

Adnoc Distribution is seen as a proxy to the recovery in oil prices at a moment stock gauges in the Middle East underperform global peers amid increasing geopolitical concern. Abu Dhabi’s benchmark stock index has declined more than 3% this year, compared with an increase of about 30% for the MSCI Emerging Markets Index.

Oil gains

Oil is heading for a second yearly gain as the Organization of Petroleum Exporting Countries and its allies including Russia extend supply cuts through the end of 2018. Prices resumed its advance toward $58 a barrel as industry data showed U.S. crude stockpiles probably dropped for a fourth week. Oil prices declined more than 40% from 2014.

Adnoc raised 3.1 billion dirhams ($851 million) from the sale of 1.25 billion shares, which were priced at 2.50 dirhams each. About 90% of the shares were bought by qualified investors, while close to 10% were sold to individuals.

"The IPO is part of Adnoc’s program to expand strategic partnerships and diversifying sources of income and diversifying mutual investment opportunities,” Adnoc Chief Executive Office Sultan Al Jaber said Wednesday.

Last month, Emaar Development PJSC, the UAE real estate arm of Emaar Properties PJSC, dropped on its first day of trading in Dubai amid escalating geopolitical tensions with Iran and a crackdown on corruption in Saudi Arabia. The stock is down 11% since it started trading.

“Everybody is pleasantly surprised with the opening of the shares -- there was worry that the secondary market weakness could affect the opening day,” said Mohammed Ali Yasin, chief executive officer of NBAD Securities LLC. End of year results meeting or beating expectations is “going to provide us with good ammunition for the share price to defend itself at the current price or maybe take it upward,” he said.

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