IQ becomes sole owner of QAFCO, the world’s largest single-site urea producer

Industries Qatar (IQ) yesterday held its Extraordinary General Assembly and got approval for all the items on the agenda of the meeting, including the shareholders’ nod for IQ’s proposed purchase of Qatar Petroleum’s 25 percent stake in the share capital of Qatar Fertilizer Company (QAFCO) for a purchase consideration of $1.0bn. 

With this key approval, IQ became the full owner of the QAFCO, one of the largest fertilizer producers in the world. QAFCO also boasts to have the world’s largest single-site producer of ammonia & urea and thereby made Qatar the world’s fourth largest urea producer, with a significant share of the world urea supply. 

The meeting, which was held electronically, given the current conditions and the precautionary measures to contain the spread of COVID-19, was inaugurated with the opening speech of the Minister of the State for Energy Affairs, H E Saad Sherida Al Kaabi, who is also the Chairman of the Board of Directors and Managing Director of IQ. 

“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 fertilizers sector, in which QAFCO has a proven track record of operational excellence and a strong market position,” H E Al Kaabi told 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 a 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, also addressed the EGM on behalf of the Board of Directors of Industries Qatar. 

“The effective date of the transaction would be January 1, 2020, until 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 a nil consideration,” said Al Sulaiti.

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 favourable 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 the 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 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 QR6.01bn, 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 its current its 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 QR4.58bn. 

There is an additional valuation impact of QR4.63bn 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 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 QR15.22bn, with a total uplift of QR9.21bn in the valuation due to this transaction.

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