Abu Dhabi National Energy Company (TAQA) is likely to face weakness in its share price in the short-term with the conversion of mandatory convertible bonds on September 1, says a research note by Al Mal Capital.
“We think this is the most significant threat to the share price in the very near term because of the dilutive consequences of the convertible,” the note said.
TAQA, which is forecast to post 179 per cent growth in production and 55 per cent rise in earnings per share (EPS) in 2008, has so far unable to secure the interests of minority shareholders.
The company issued convertible bonds totalling Dh4.15 billion to shareholders at a conversion rate of Dh2 per share which will increase the number of shares outstanding by 50 per cent from 4.150 billion to 6.225 billion.
The bond, which sent the share price sliding down from Dh3.80, suggests that management has been somewhat indifferent towards maintaining shareholder value.
“While we remain enthusiastic about the company’s acquisition-driven growth prospects, we are somewhat sceptical whether this growth would actually benefit its public shareholders,” Al Mal Capital said.
TAQA, through its subsidiaries, provides over 85 per cent of the water and electricity consumed in Abu Dhabi. As of 2008, the company held 9,423 megawatts (gross) of installed generation, 119mboe/d in average upstream oil/gas production, reserves of 501mmboe, gas processing, pipelines and natural gas storage.
Positives: TAQA’s exposure to the entire energy value chain promises synergies. Building upon its downstream (utility) operations, the company has continued expanding its asset base through acquisitions over the last year or so. As of second quarter 2008, the company derives 50 per cent from upstream, 45 per cent from downstream and five per cent from midstream operations.