KKR, BlackRock debut in Middle East with $4bn Abu Dhabi pipeline deal

The Abu Dhabi National Oil Company believes the deal ‘is laying the groundwork’ for further infrastructure investment by institutional investors.

KKR and BlackRock have made their first inroads into the Middle East following an investment with the Abu Dhabi National Oil Company worth $4 billion.

The duo has formed a partnership with ADNOC which will lease 18 pipelines, transporting oil across ADNOC’s offshore and onshore upstream concessions, for a 23-year period. The pipelines will be held by holding company ADNOC Oil Pipelines, owned 60 percent by ADNOC and 40 percent by KKR and BlackRock, generating $4 billion in proceeds for the emirate.

ADNOC said it believes the deal “is laying the groundwork” for future infrastructure partnerships with institutional investors. The state’s stake in ADNOC Oil Pipelines is held by ADNOC Infrastructure, which is set to “become the key vehicle for a new and innovative ADNOC infrastructure investment platform”, it said in a statement. The vehicle also holds a 100 percent stake in Abu Dhabi Crude Oil Pipeline and further assets are expected to be added over time.

Explaining the background of the deal, a KKR spokeswoman told Infrastructure Investor it had “been talking to ADNOC for the last couple of years to see if there were some ways we could partner together. As those discussions and their needs evolved, they chose us (and BlackRock) for this”.

The deal is the third oil and gas transportation asset bought by KKR’s $7.4 billion Global Infrastructure Investors III fund, the largest infrastructure vehicle raised last year. Earlier this month, the group committed $449 million as part of a joint venture with SemGroup to acquire midstream services in Canada, while last year it bought Texas-based Discovery Midstream from TPG Growth for about $1.2 billion, also in a joint venture with Williams. The fund has also invested in aircraft leasing company Altavair and French telecoms business Starlight.

“We appreciate the high quality of ADNOC as a partner and Abu Dhabi’s investor-friendly environment to enable our first direct investment in the region,” added Henry Kravis, founder of KKR, in a statement. “With this transaction as a precedent, we believe there is substantial potential to do even more.”

BlackRock’s investment has come via its Global Energy & Power Infrastructure Fund III, where 40 percent of its investments are expected to be comprised of contracted midstream assets. GEPIF III remains in fundraising mode, having garnered $2.1 billion a at October last year, ahead of a $3.5 billion target.

Equity cheques for GEPIF III range from about $100 million to $300 million, culminating in investments worth a total of between $500 million and $1 billion, Mark Florian, head of BlackRock’s global energy and power team, told Infrastructure Investor last year.

The fund targets net returns of 11 to 12 percent, although the previous instalment of the fund series was generating a net 47.9 percent return as at the end of March last year, according to pension fund documents.