Qatar’s largest publicly-traded company Industries Qatar (IQ) received approvals from the shareholders to complete its proposed $1 billion deal to acquire Qatar Petroleum’s 25 percent stake in the world’s largest single-site urea producer, Qatar Fertilizer Company (QAFCO).
With the proposed deal, IQ will hold 100 percent ownership of QAFCO which made Qatar the world’s fourth-largest urea producer, with the firm contributing a major share of the product around the world.
Saad bin Sherida al-Kaabi Chairman & MD – IQ Minister of the State for Energy Affairs Qatar
“As part of IQ’s management efforts to adhere to the principles of good governance, while upholding the Company’s interest in a way that enhances the shareholders’ value, an independent financial evaluator registered with the Qatar Financial Markets Authority was engaged to evaluate the proposal to acquire 25 percent stake in QAFCO. Based on the analysis, this transaction will not only bring higher returns to the Company, but it would also build-up Industries Qatar’s presence in the fertilizer sector, in which QAFCO has a proven track record of operational excellence and a strong market position.” HE Saad bin Sherida al-Kaabi Al Kaabi said to the shareholders.
He added: “Moreover, the proposal to purchase this stake in QAFCO is consistent with IQ’s strategy and continued efforts to build its presence and add value across the downstream sector using the free cash flows available in an efficient and effective manner that is aligned with our central strategy and core business.”
The Chairman of the fertilizer giant also noted that the transaction would make IQ the sole proprietor of QAFCO’s share capital with full control over QAFCO, and therefore would provide Industries Qatar an opportunity to make strategic decisions.
On the other hand, the company will also look for more opportunities to further enhance its position in the downstream sector.
Mohammed Jaber Al Sulaiti, Manager Privatized Companies Affairs Department at Qatar Petroleum said that “The effective date of the transaction would be January 1, 2020, until the expiry of the new Gas Sale and Purchase Agreement (“GSPA”), i.e. December 31, 2035. The 25 percent ownership in QAFCO will return back to Qatar Petroleum at the end of the term for nil consideration.”
He added: “As part of this transaction, with effect from 1st August 2020, QAFCO has entered into a new GSPA with Qatar Petroleum for a period until December 31, 2035, covering all the gas requirements for QAFCO trains 1-6 and the facilitates of Qatar Melamine Company.”
He also highlighted that this bundled deal would not only provide efficient and effective use of excess cash available at the Group level but also provide us with 100 percent control over the world’s largest single-site Urea producer, along with favorable terms of the new GSPA with QP.
“Here, I would like to highlight that this new GSPA would provide us with enhanced operational resilience and more opportunities to focus on operational excellence, safety and cost-efficiency. As noted in the presentation, the new GSPA would also bring additional financial benefits to the Group driven via improved profitability margins.”
In addition, and as part of the same transaction, with effect from July 1, 2020, QAFCO would acquire a 40 percent stake in QMC from QP at the net book value of QMC as of June 30, 2020.
The equity value of QAFCO before this transaction amounted to $1.65 billion which represents the valuation based on a discounted cash flow methodology with the old GSPA assumed to be extended until December 31, 2035, with IQ maintaining it’s current ownership of 75 percent in QAFCO.
The valuation impact of the 25 percent acquisition of QAFCO for a period of 16 years, and a transfer of the same stake back to QP at a nil consideration when the 16 years term ends, would amount to $1.26 billion.
There is an additional valuation impact of $1.27 billion on account of cost savings on the feedstock based on the new GSPA as compared to the old agreement on the existing 75 percent stake in QAFCO, together with the impact of the acquisition of 40 percent stake in QMC by QAFCO and certain other impacts.
With all the new impacts, the equity valuation of QAFCO after this transaction would reach to $4.18 billion, with a total uplift of $2.53 billion in the valuation due to this transaction.
