The hydrocarbon IPO market in the Middle East and North Africa (MENA) continues to sizzle. Following significant IPO rounds that introduced subsidiaries of Saudi Arabia's oil titan Aramco and Abu Dhabi's national oil company ADNOC, another substantial IPO is gaining momentum. ADES Holding, a prominent oil and gas drilling firm with partial backing from Saudi Arabia's sovereign wealth fund PIF, has affirmed its intention to forge ahead with its scheduled IPO on the Saudi Exchange. ADES announced that the IPO will encompass 338,718,754 common shares, equating to a 30% floatation of total shares. The IPO has set an ambitious target, aiming to secure $1 billion or more in funding.
Over the past decade, ADES has undergone significant transformations, including its listing on the London Stock Exchange in 2017. After an impressive growth phase, the company was privatized through a partnership between PIF and the primary ADES stakeholders, ADES Investment Holding and Zamil Group Investment—a major Saudi conglomerate. This deal in 2021 valued ADES at $516 million. At that juncture, the company's headquarters were situated in Egypt, with Saudi Arabia and its home nation serving as the primary drilling markets. Following the PIF's involvement, ADES has ascended to become a key drilling operator in MENA, boasting a fleet of 85 rigs and active operations across seven countries. ADES' CEO, Abbas, affirmed that the IPO funds will fuel future growth initiatives, further cementing its leadership position in the Saudi Arabian and global jack-up drilling sector. The company's clientele currently includes Saudi Aramco and Kuwait Oil Company, and it also maintains joint ventures with BP and ENI. According to ADES' plans, PIF, ADES Investment Holdings, and Zamil Group will offload 101,615,626 existing shares in proportion to their holdings while concurrently issuing 237,103,128 new shares. Related: Global Warming To Exceed 2 Degrees Celsius Limit By 2050: Exxon
The impending IPO marks a pivotal stride in Saudi Arabia's ongoing economic diversification agenda. Aligned with Saudi Vision 2030 and receiving support from international advisors and financial institutions, the call for both governmental entities and private companies to list on the Saudi stock exchange, TADAWUL, is resounding. In the first half of 2023, MENA has already witnessed IPOs amassing over $5 billion in capital, predominantly stemming from the UAE and Saudi Arabia. However, these figures lag behind by 60% compared to the same period in 2022. Saudi Arabia's IPO activity has dwindled by 82%, garnering less than $900 million in proceeds, while the UAE continues to excel with around $4 billion during the same timeframe. The upcoming months herald several impending IPOs, with Egypt also gearing up for a comprehensive program.
The definitive offer price is slated for announcement on September 18, 2023, following the book-building process. The anticipation of the IPO aligns with prior expectations, as ADES was initially projected to go public in H1 2023. Esteemed financial institutions including EFG Hermes, Goldman Sachs Group Inc., JPMorgan Chase & Co., and Saudi National Bank Capital are orchestrating the IPO efforts. Presently, the timing appears propitious, driven not only by TADAWUL's upward trajectory but also by Saudi Arabia's brighter economic outlook attributed to surging crude oil prices. MENA remains a substantial oil and gas production hub, offering abundant opportunities for ADES to reap rewards, especially with the support of PIF, a fund linked to the Saudi government.
Optimism pervades the Arab media, underpinning expectations for a triumphant IPO. Potential Arab investors are poised to participate enthusiastically, with ADES' direct connections to Aramco serving as a major selling point, albeit potentially a stumbling block for some. Meanwhile, ADES grapples with a significant period of transition—not due to its overall capitalization or financial market access but owing to its extensive fleet expansion and the intricate task of integrating new rigs, technologies, and capabilities. In recent years, the PIF-backed entity, a collaboration between Saudi Arabia and Egypt, has acquired a plethora of onshore and offshore jackups from companies like Maersk and Noble Energy. The challenge of effectively integrating these assets persists, evident in the company's performance and historical records. Critics argue that ADES may have expanded too swiftly to adeptly assimilate new systems into their operations. Amid these perspectives, the current fleet is acknowledged for its diversity and inclusion of older rigs, which could pose challenges in meeting future demands from clients like Aramco and abiding by market conditions and legal ESG obligations. The IPO's potential repercussions in this regard remain uncertain, given the formidable backing of a government-linked PIF IPO. While political strategies and government pressures might ensure initial success, the subsequent operational landscape hinges on technical and economic factors. Amidst the future challenges within MENA's offshore and onshore oil and gas sector, sustaining the market's current expectations necessitates substantial efforts. The forthcoming impact of 20 new offshore jackup rigs for Saudi Aramco, slated for construction at International Maritime Industries (IMI)'s Ras Al Khair Shipyard, will undoubtedly be a subject of assessment. Amid fierce competition, especially considering ADES' existing fleet's non-novel status, potential collaboration between Aramco and ADES may emerge as a strategic solution—should Aramco's Midrah Building strategists allocate some new builds to ADES in the future.
By Cyril Widderhoven for Oilprice.com
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