Naturgy (formerly Gas Natural Fenosa) and Sonatrach have agreed to buy out the 42.09% stake of Mubadala Investment held by its subsidiary Cepsa in the underwater Medgaz gas pipeline between Algeria and Spain.

The deal values 100% of Medgaz’ equity at around €1.3bn ($1.43bn) with an enterprise value of around €1.9bn ($2.1bn).

The 210km long Medgaz subsea gas pipeline, which passes through the Mediterranean Sea, has been in operation since 2010.

Medgaz gas pipeline capacity

The 24inch underwater pipeline transports natural gas sourced from Beni Saf on the Algerian coast to Almeria in Andalusia with an initial capacity of eight billion cubic metres of natural gas per year (bcm).

The transaction value covers an approved 2bcm expansion project of the current gas pipeline, which will boost its capacity by 25% to 10bcm per year. Investment for the pipeline expansion project is €67m ($73.91m).

Following the completion of the transaction, the Medgaz gas pipeline will be owned by the Spanish gas and power utility Naturgy (49%) and the Algerian national oil company Sonatrach (51%). The Algerian company is also the fourth largest shareholder of Naturgy with a stake of 4%.

The Spanish utility, which currently holds a stake of around 15% in the Medgaz pipeline, will acquire an additional 34.05% in the asset for €445m ($490.92m) through a special purpose vehicle (SPV). Naturgy said that it will look to bring in a financial partner to join it in buying the stake to reduce its equity contribution.

Naturgy executive chairman Francisco Reynés said: “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, which represent an attractive price in exchange for stable and predictable long term dividends, meeting our shareholder value creation criteria.”

According to Naturgy, the expanded section of the pipeline will enter into full operations in 2021.

Subject to meeting certain conditions and receipt of approvals, the transaction is expected to be closed by the end of March 2020.