SOCAR International DMCC

The purpose of the following is to explain and clarify the history and purpose of SOCAR International DMCC.

In 2011, the SOCAR Group established a joint venture entity in the United Arab Emirates (UAE) under the SOCAR brand name – SOCAR International DMCC. The primary goal was to develop trading businesses in the strategic Middle East region.

Following the success of the SOCAR Trading joint venture, the same principles were applied to the Middle East venture. SOCAR held a 50% ownership stake and Mr Anar Alizade, through his company Petroline DMCC, held the remaining 50%. Mr Alizade was selected as a partner in this trading entity due to the fact he had already established businesses in the UAE for more than 7 years, his positive working relationship with SOCAR given the huge success of SOCAR Trading and his partnership complied with the state programme to give preference to Azerbaijani businessmen. SOCAR International DMCC was registered in Dubai, UAE in June 2011.

SOCAR International DMCC had two primary business objectives. The first was to develop a strategic asset – namely the Fujairah storage terminal. The second was to establish a robust trading business in the region. This second objective would be substantially enhanced through the ownership of an oil facility.

SOCAR International DMCC entered into a joint venture with an investor of Middle East origin to construct the Fujairah storage terminal. The Middle East partner received a 45% ownership stake in the Fujairah terminal, while SOCAR International DMCC received another 45% stake. This meant that SOCAR and Mr Alizade each held 22.5% ownership of the terminal. The final 10% stake was held by the Fujairah Petroleum Company – as is typical when setting up businesses in Fujairah Emirate. As SOCAR is bound by confidentiality agreements, it is unable to disclose the identity of the Middle East partner.

SOCAR International DMCC was incorporated several months before the completion of Phase I of Fujairah Terminal in March 2012. The construction of the terminal was funded through a mix of debt and equity. Naturally, debt providers carried out routine due diligence for a project of this scale. Construction Phase II, which almost tripled the total capacity of the Fujairah Terminal, was completed in September 2013.
At the time of Phase I’s completion, the market conditions significantly worsened for oil products and competition reached extreme levels. Thus storage facilities of Fujairah terminal were no longer of value to the trading business. As a result, SOCAR International DMCC ceased trading and used the Fujairah terminal to provide storage services for third parties.

Once SOCAR International DMCC stopped trading, there was little incentive for Mr Alizade to remain involved in the business. Mr Alizade approached SOCAR to negotiate an exit from SOCAR International DMCC. A preliminary Memorandum of Understanding was agreed between the two SOCAR International DMCC shareholders in July 2013.

On 21 August 2013, the two parties signed a share purchase agreement and SOCAR acquired all of Mr Alizade’s shares in SOCAR International DMCC for just over $23 million. The price of $23 million reflected Mr Alizade’s 22.5% ownership stake in the Fujairah terminal and represented the book value of the asset. However, SOCAR in fact purchased the shares at a price which was lower than the market value – as the value of projects typically increase post completion. Fujairah terminal is expected to have at least doubled in value since completion.

During Mr Alizade’s participation in SOCAR International DMCC, dividends were distributed to both shareholding companies. SOCAR International DMCC declared dividends to SOCAR and Petroline DMCC in the amount of $10 million in 2012 and $10 million in 2013. In 2012, Mr Alizade decided to retain 90% of his share of dividends with the company for further development. SOCAR received its portion in cash. In 2013, both shareholders were paid their dividends which amounted to $5 million per shareholder plus the remaining 90% from 2012 for Mr Alizade.

Today, the Fujairah terminal is owned 45% by SOCAR, 45% by the Middle East partner and 10% through the Fujairah Petroleum Company. No Azeri crude oil is stored at the terminal.

With Mr Alizade’s assistance, SOCAR International DMCC was able to set up a Middle East trading arm and invest in a storage facility. The value of SOCAR’s investment in the Fujairah terminal has increased as the estimated market value of the terminal has more than doubled after buyout.