Brookfield Asset Management Inc. and the Ontario Teachers’ Pension Plan have joined a group of investors buying a US$10-billion stake in an Abu Dhabi-owned natural gas pipeline network in the United Arab Emirates.
The transaction, announced Tuesday, is the largest energy infrastructure deal so far this year, and one of the first global megadeals since the COVID-19 pandemic and an oil price war upended energy markets in March.
The consortium, which also includes New York-based Global Infrastructure Partners (GIP), Singapore’s sovereign wealth fund GIC Private Ltd., South Korea’s NH Investment & Securities and Italian energy company Snam S.p.A., will acquire a 49-per-cent stake in a new subsidiary of the state-owned Abu Dhabi National Oil Company (ADNOC).
The joint venture, called ADNOC Gas Pipeline Assets LLC, is charged with running the UAE’s natural gas pipeline infrastructure. ADNOC will retain 51 per cent of the company.
Neither Brookfield nor Teachers disclosed the size or details of their investments, and both declined to comment on the transaction. A press release from Snam, however, says GIP is taking a large lead order and the remaining investment is split evenly among the other five consortium participants.
A group of unnamed international banks is supporting the transaction with about US$8-billion in funding, Snam noted. That suggests a large portion of the investments from Brookfield and Teachers are being financed with debt. Credit Suisse analyst Andrew Kuske estimates that Brookfield is putting about US$250-million of equity capital into the deal.
“The economic impact for Brookfield Infrastructure Partners is rather small – albeit the energy infrastructure positioning is interesting amidst a global market for assets from large potential capital providers,” Mr. Kuske wrote in a note.
ADNOC Gas Pipeline Assets will have a 20-year lease on 38 natural gas pipelines totalling 982 kilometres. It will generate revenue transporting gas from rigs and refineries across the energy-rich UAE to export terminals. Payments will be based on amounts of gas transported through the system, subject to a volume cap.
The deal comes at a moment of uncertainty in global energy markets, with oil and gas prices pummelled by a quarantine-induced demand shock as well as a price war between Saudi Arabia and Russia. Both Brookfield and Teachers, however, said they see the investment as a long-term play.
“This transaction aligns with our strategy of investing in high quality, essential assets generating stable and predictable cash flows in a sector we know well,” Brookfield chief executive Bruce Flatt said in a statement.
Ziad Hindo, Ontario Teachers’ chief investment officer, echoed this: “This strategic transaction is attractive to Ontario Teachers’ as it provides us with a stake in a high-quality infrastructure asset with stable long-term cash flows, which will help us deliver on our pension promise,” he said in a statement.
The investment did draw criticism from advocacy group Shift Action for Pension Wealth and Planet Health, which said Teachers is exposing “the pension savings of thousands of Ontario teachers to climate-related financial risk” and undermining action on climate change “by locking in polluting infrastructure for decades to come.”
This is Brookfield’s first infrastructure investment in the Middle East, although it has real estate assets in the UAE, including a 1.5-million-square-foot office tower under construction in Dubai. The Toronto-based asset manager has a large portfolio of natural gas assets, including more than 22,000 kilometres of pipelines in North America, South America and India.
It is the first direct investment Teachers has made in the Middle East, and the pension plan’s second investment in natural gas distribution, after U.K.-based gas company SGN. The deal “provides further geographic diversification to our portfolio,” Mr. Hindo said.
Canada’s large alternative asset managers, including Brookfield and Teachers, are sitting on record amounts of committed capital to invest. Since COVID-19 hit markets in March, private equity fund managers have had difficulty sourcing deals, as companies wait to see if prices rebound before considering a sale. The story is different for infrastructure deals, which continue to be negotiated, say people with knowledge of the private investment landscape.
For ADNOC, the transaction is part of an ongoing effort to bring institutional capital to the UAE, and monetize existing infrastructure. Last year, KKR & Co. and BlackRock agreed to invest US$4-billion in the UAE’s oil pipeline network.
“Today’s landmark investment signals continued strong interest in ADNOC’s low-risk, income-generating assets, and sets another benchmark for large-scale energy infrastructure investments in the UAE and the wider region,” said Sultan Ahmed Al Jaber, UAE Minister of State and ADNOC Group CEO, in a statement.
Other Persian Gulf countries have pursued a similar strategy in recent years. Most notably, Saudi Arabia sold off a portion of its state-run oil company, Saudi Aramco, late last year, raising US$29.4-billion in the largest initial public offering in history.