Keppel Infrastructure Trust (KIT) says it is seeking to invest in Aramco Gas Pipelines Company, an entity with cash flows derived from the gas pipelines network of Saudi Arabian Oil Company (Aramco).
KIT, on Feb 8, had entered into a subscription agreement as well as a limited partnership agreement to invest in Aramco’s gas pipelines business, Aramco Gas Pipelines Company.
Aramco Gas Pipelines Company is a newly-formed subsidiary of Aramco, which is one of the world’s largest integrated energy and chemicals companies.
Under the agreements, KIT will invest US$250 million ($336.2 million) along with investors such as BlackRock and Hassana Investment Company for an indirect minority and non-controlling stake into a special purpose vehicle (SPV). Hassana Investment Company is the investment arm of the General Organization for Social Insurance of the Kingdom of Saudi Arabia.
The SPV will then acquire a 49% stake in Aramco Gas Pipelines Company for a consideration of US$15.5 billion. Aramco will retain the remaining 51% stake in Aramco Gas Pipelines Company.
Following the acquisition of the 49% stake, Aramco Gas Pipelines Company will lease usage rights in Aramco’s gas pipeline network in Saudi Arabia to the SPV for a 20-year period.
Concurrently, Aramco Gas Pipelines Company will grant back to Aramco the exclusive right to use, transport through, operate and maintain the gas pipeline network during the 20-year period in exchange for a quarterly volume-based tariff, which will be backed by minimum volume commitments. Aramco will retain the legal title to, and the sole operational control of, the pipeline assets.
“The acquisition is expected to provide long term, predictable cash flows to KIT through investing into a strong and growing business that is underpinned by one of the world’s largest reserves of natural gas,” says KIT in a statement.
Gas demand in Saudi Arabia is expected to increase at a compound annual growth rate (CAGR) of 3.7% from 2021 to 2030 due to an increase in demand from the power generation and the refining and industrial sectors, as well as favourable governmental policies.
“As the world pivots towards a more sustainable energy future, gas is expected to continue to play a key role in the global energy transition. The strategic addition of this gas pipeline business will allow KIT to diversify its income base geographically, as well as provide greater stability in the long term by replenishing the portfolio through the addition of another resilient business,” says Jopy Chiang, CEO of the trustee-manager.
“Given the strong fundamentals and the partnership with a top-tier counterparty with a world class operational record, the investment in Aramco Gas Pipelines Company is in line with the KIT’s strategy of acquiring and investing in good quality infrastructure businesses that generate longterm stable cash flows with potential for growth,” Chiang adds.
Upon the completion of the acquisition, KIT’s total assets under management (AUM) will increase to $4.6 billion, from $4.5 billion as at Dec 31, 2021.
The acquisition will be funded through internal sources of funds and existing debt facilities, including a two-year bridge facility taken up by KIT.
As at 9.30am, units in KIT are trading flat at 54.5 cents.