Naturgy, a Spanish utility, and Sonatrach, Algeria’s state-owned oil and gas company, have agreed to buy Abu Dhabi sovereign wealth fund Mubadala’s just over 42 per cent stake in the Medgaz gas pipeline between Algeria and Spain.

Naturgy will increase its stake in the strategic infrastructure by nearly 34 per cent for €445m, transforming it into a strategic shareholder, while the north African oil major also raised its equity position by 8 per cent.

The two companies will now entirely own the deepwater pipeline, in a special purpose vehicle with Sonatrach as the leading shareholder with a 51 per cent stake and Naturgy holding the remaining 49 per cent.

Medgaz is one of four major gas pipelines that flow from north Africa to Europe, two of which land in Spain, and there are plans to increase its capacity by 25 per cent to 10 bcm of natural gas per year by 2021.

The deal, which is likely to improve the energy security of Spain, comes at a time when opinions continue to be split in the European Union over the construction of the Nord Stream 2 gas pipeline from Russia to Germany.

Naturgy said that the pipeline is expected to produce €130m of dividends per year from 2021 onwards.

“Overall it is a highly attractive transaction for Naturgy, not only because it is a strategic infrastructure asset in which we notably increase our control rights, but also due to the financial terms achieved in the agreement,” said Francisco Reynés, executive chairman of Naturgy.

Mubadala, one of the world’s largest sovereign wealth funds that manages assets exceeding $225bn, is currently selling off businesses to return funds to its government shareholders.

The deal is due to complete by the end of March 2020 and can be opened to a financial partner to reduce the Spanish company’s equity stake.

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