Adnoc’s €12 Billion Covestro Deal Gets Boost as EU Remedies Loom - Bloomberg

Adnoc’s €12 Billion Covestro Deal Gets Boost as EU Remedies Loom - Bloomberg

Abu Dhabi National Oil Co.’s nearly €12 billion ($14.1 billion) takeover of Covestro AG is edging closer to European Union approval after talks with regulators paved the way for a package of commitments to be submitted as soon as next week, according to people familiar with the matter.

EU watchdogs had earlier been pressing Adnoc for long-term expenditure plans as part of a far-reaching investigation into its planned buyout of German plastics giant Covestro, but Abu Dhabi’s state oil company resisted, considering the information to be a state secret.

Officials are now open to forgoing the information on Adnoc’s future investments in Europe — allowing talks to move forward and setting the stage for formal remedies to be filed next week, said the people, who spoke on condition of anonymity.

The people added that while timing could slip, the plans are, for now, on track for the filing of commitments, including a pledge to maintain Covestro’s intellectual property in Europe as well as concessions on the company’s unlimited state guarantee from the UAE. Additional concessions were also expected to be put on table, the people said.

Covestro’s shares jumped as much as 6.2% on the news.

A takeover of Covestro would give Adnoc — the biggest oil producer in the United Arab Emirates — control over a German company that supplies materials for some of the world’s most prominent phone and carmakers. Adnoc would own Covestro through its investment unit XRG, set up in November as the company’s international platform for natural gas, chemicals and energy solutions.

“While we don’t comment on ongoing discussions, we are working constructively with the European Commission,” said a spokesperson for XRG. Covestro and the commission declined to comment.

Other Deals
The progress in talks marks a shift after XRG said earlier this month that the Covestro deals risked being torpedoed by the European competition probe as the requests for information were “disproportionate and invasive.”

A successful closing of the transaction would be key for Adnoc’s and XRG’s ambitions, including plans to use the billions of dollars at its disposal to snap up assets around the world. The company has already done deals for gas assets in the US, Africa and Central Asia, and is planning more in the Americas.

But the boldest play yet, a $19 billion takeover bid for Australian gas producer Santos Ltd., collapsed this month when XRG pulled out of negotiations over a combination of issues that it said hurt the deal’s attractiveness. That puts the focus on the company to show it can close out complex cross-border acquisitions.

In July, the European Commission opened a full-scale investigation into the Covestro deal under tough new foreign subsidies rules, aimed at preventing sovereign states from using their financial muscle to crush competition in the 27-nation bloc. Officials at the EU’s executive arm warned that Adnoc’s state funding may give it an unfair advantage over rivals with less-deep pockets.

Last year under the bloc’s foreign subsidy rules, Abu Dhabi’s Emirates Telecommunications Group Co PJSC was forced to sign up to commitments that removed an unlimited state guarantee, in order to win EU approval for its €2.2 billion acquisition of PPF Telecom Group assets.

Aside from acquisitions, the EU has wielded its foreign subsidy powers largely against Chinese involvement in European markets across rail and clean energy sectors. Regulators raided the premises of Nuctech — a Chinese security equipment company with sites in the Netherlands and Poland.

#Saudi Stocks Jump Most Since 2020 on Plan to Relax Foreign Curbs - Bloomberg

Saudi Stocks Jump Most Since 2020 on Plan to Relax Foreign Curbs - Bloomberg

Saudi Arabia’s stock market surged — adding $124 billion to its market capitalization — after Bloomberg reported that the kingdom may soon ease foreign ownership limits for listed companies.

The Tadawul All Share Index jumped 5.1% on Wednesday, the most in more than five years, after a board member of the Capital Market Authority said majority foreign ownership could come into effect by the end of the year.

Saudi bank stocks surged by a record 9.2% while JPMorgan Chase & Co., EFG Hermes and Franklin Templeton predicted billions in potential inflows to the market, which has missed this year’s emerging-market rally due to a drop in oil prices.

Investors are betting on a flood of investment to the Gulf nation if it eases rules that now cap foreign ownership of listed companies at 49%. The move would fit with Crown Prince Mohammed bin Salman’s efforts to deepen the local capital market and align it with its Gulf peers. The UAE, for example, said in 2019 it will allow foreigners to own 100% of businesses across industries.

“What makes it so powerful is the scale of the impact: a full removal could unlock over $10 billion in passive inflows, drive a major MSCI and FTSE reweighting and lift Saudi’s EM index weight by nearly 100 basis points,” said Salah Shamma, Franklin Templeton’s head of equity investment for the Middle East and North Africa.

While it’s a welcome step that can trigger a strong technical rally, the sustainability of Saudi Arabia’s stock market performance will rest on market fundamentals and the broader economic outlook, he added. Saudi stocks have suffered amid concerns around geopolitical tensions, low oil prices and the effects of spending curbs on economic growth.

A decision by the CMA to allow majority foreign ownership isn’t a foregone conclusion and it’s unclear how big a stake foreigners could eventually be able to own in Saudi equities if approval goes ahead.

But any move above 50% would be significant as it would allow investors from abroad to hold a majority of share capital in publicly listed companies for the first time.

The potential decision has given Saudi stocks a much needed boost: the benchmark index is among the worst performers globally this year, falling over 5% while the MSCI All Country World index has climbed almost 17%. Local investors have been a big part of selloff, while foreigners have used the slump — and its drag on valuations — as an opportunity to become more active in the market.

JPMorgan sees a potential capital influx of $10.6 billion should the CMA lift the ownership limit on stocks to 100%. EFG Hermes also anticipates about $10 billion of inflows.

Shares of Al Rajhi Bank surged 10%. Both JPMorgan and EFG expect it to be the biggest beneficiary of the possible change, attracting around $5 billion to $6 billion. Saudi National Bank and Alinma Bank would be the other key winners, JPMorgan analyst Pankaj Gupta said.

Lifting the restrictions also stands to boost the weight of Saudi equities in MSCI Inc. benchmarks. The kingdom’s weight in the MSCI Emerging Markets Index, for example, may increase to about 4%, JPMorgan’s Gupta wrote in a report. That compares with about 3.3% currently.

Saudi firms with the largest total percentage of shares owned by investors abroad prior to today’s trading include insurance provider Tawuniya, tech firm Rasan and telecom operator Etihad Etisalat. All stood above 20%, but below 25%.

Saudi National Bank has more than 17% of its total free float of shares out to foreigners, while Al Rajhi has under 15%. Alinma has below 10%.

Mideast Stocks: #Saudi stocks soar to 5-year high on foreign ownership reform hopes

Mideast Stocks: Saudi stocks soar to 5-year high on foreign ownership reform hopes

Saudi stocks rallied sharply on Wednesday following news that the Capital Market Authority (CMA) is considering allowing foreign investors to own majority stakes in listed companies, while UAE markets extended losses on broad weakness.

Saudi Arabia's benchmark index surged 5.1%, recording its biggest single-day gain in more than five years, on market-wide strength after Bloomberg News reported regulators may ease the current 49% cap on foreign ownership of listed firms, a move expected to draw fresh foreign inflows in the region’s largest equity market.

Shares of Al Rajhi Bank, the world’s biggest Islamic lender, climbed 10%, hitting the exchange’s daily limit and marking the steepest gain in nearly two decades. Saudi National Bank also rose 10%, its largest advance since its 2014 listing.

The potential rule change may trigger over $10 billion in foreign inflows and lead MSCI to raise Saudi Arabia’s index weights, boosting demand and valuations, said Daniel Takieddine, co-founder and CEO of Sky Links Capital Group.

However, Oil behemoth Saudi Aramco eased 0.2%, after talks to acquire a minority stake in Spanish energy firm Repsol’s renewables unit hit an impasse over a potential 1 billion euro ($1.2 billion) investment, two sources familiar with the matter told Reuters.

Dubai's main share index fell 1.5%, , with all sectors lower on profit-taking after a failed rebound. Emaar Properties slipped 2.5% to a three-month low, while Emirates NBD Bank lost more than 1.5%. National Central Cooling dragged on utilities, down 3% after trading ex-dividend.

In Abu Dhabi, the benchmark declined 1.3%, erasing much of its recent recovery. Aldar Properties fell 2.6% to a more-than two-month low, while ADNOC Gas dipped 0.6%. 

A drop of more than 1% in Dubai and Abu Dhabi reflected reaction to possible Saudi regulatory changes, said Mohammed Ali Yasin, CEO of Ghaf Benefits at Lunate.

Qatar's stock index ended 0.9% lower, its fourth straight decline, as Qatar Islamic Bank slid over 2% and Qatar National Bank fell 1.1%. 

Outside the Gulf, Egypt's blue-chip index jumped 1.8%, building on the previous session's gains, boosted by a 3.2% jump in Commercial International Bank.