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From Youssef Saba

DUBAI, July 7 (Reuters) - Abu Dhabi's ADNOC Distribution said on Tuesday it had entered into a definitive agreement to acquire Shell Downstream South Africa for an estimated $1 billion, marking its biggest overseas acquisition to date as it seeks to expand beyond the Gulf region.

The acquisition of Shell Downstream South Africa includes 580 company-owned service stations and dealerships, as well as wholesale fuel, jet fuel, and lubricant sales operations. It will expand ADNOC Distribution's network by 55 percent to approximately 1,600 locations and increase fuel capacity by 20 percent.

South Africa will be ADNOC Distribution's fourth market after the UAE, Saudi Arabia, and Egypt. The deal is a step towards achieving its ambitions of becoming a global player in the mobility and retail sectors.

Badr Saeed Al Lamki, CEO of ADNOC Distribution, said the company is still looking to grow, and that Africa and Southeast Asia are among the target regions.

The company expects the deal to contribute to a 6 percent increase in ADNOC Distribution's earnings per share and approximately 13 percent in earnings before interest, taxes, depreciation and amortization during the first financial year following the completion of the acquisition.

Al-Lamki stated that the deal could result in higher dividend payouts for shareholders. The company's dividend policy, extending to 2030, guarantees a minimum annual payout of $700 million, or 75 percent of net income if it exceeds that amount.

* Annexation of South Africa

ADNOC Distribution has entered the South African fuel retail market. Vivo Energy, a subsidiary of Vitol, has dominated the market since acquiring a majority stake in Engen from Malaysia's Petronas in 2014, while Glencore operates the country's second-largest network of service stations since backing the acquisition of Chevron's Caltex stations in 2018.

The company said a 28 percent stake in Shell Downstream South Africa would be sold to a local partner and employees, in accordance with South Africa's Inclusive Economic Enabling Act, leaving ADNOC Distribution with a 72 percent majority stake. Shell Downstream South Africa sold approximately 3.5 billion liters of fuel and operated 360 retail outlets until 2025.

The company stated that South Africa’s regulated fuel pricing system provides gross profit margins per liter similar to those in the UAE, protecting returns from inflation and exchange rate fluctuations.

Before the US-Israeli war on Iran, South Africa met about 60 percent of its needs for refined products through imports, mostly from the Gulf states.

When asked whether ADNOC Distribution would invest in refining, Al Lamki said, "We are primarily a services and retail company," adding that the company would focus on its retail network, retail stores, aviation, business sector, and lubricants.

Following the completion of the proposed acquisition, ADNOC Distribution will enter into a long-term trademark licensing agreement that will allow it to continue operating service stations and lubricant businesses in South Africa under the Shell brand.

Al Lamki added, "Shell has been in South Africa for over 120 years, and our customers are used to it... We believe in the value of retaining this brand."