Abu Dhabi snaps up fifth of Japan oil firm

A unit of the UAE's International Petroleum Investment Company (IPIC) will spend about $776 million to buy one-fifth of Cosmo Oil, becoming the top shareholder in Japan's fourth-largest oil company.

The investment arm of the Abu Dhabi government is rapidly expanding into global oil and natural gas markets. Its latest investment includes OMV, Austria's largest company and one of the world's leading oil and natural gas groups.

Cosmo said it would issue 176 million new shares to Infinity Alliance, a wholly owned unit of UAE's investment arm, for 510 yen per share, a discount of 6% from Tuesday's closing price of 544 yen.

Cosmo Oil said the share issue would strengthen its financial health and help it expand.

Cosmo Oil's President Yaichi Kimura was holding a briefing on the alliance with IPIC from 0900 GMT.

The Japanese company will raise 89.2 billion yen through the share issue. The paid-in date is October 5.

The UAE companies and Cosmo have entered a comprehensive strategic alliance to further expand their business ties, Cosmo said. Infinity Alliance will own 20% of the Japanese company after the acquisition of the new shares.

IPIC's downstream investments abroad are estimated at $1.35 billion, covering six refineries with a combined production capacity of 642,500 barrels per day (bpd), 2,800 marketing outlets and exploration and production rights in 11 countries.

Cosmo last year unveiled plans to upgrade refining facilities at its Sakai plant in Osaka, western Japan, by 2009 as part of its plan to increase processing of price-competitive heavy oil and boost sales in Asia.

"The fund-raising scheme is a plus for Cosmo, which is planning new refinery facilities and is in strong need of cash," said Toshinori Ito, an analyst at UBS.

"But there is a possibility that the new facilities could further weaken the domestic oil market," he said.

Fuel sales in Japan declined for a ninth straight month in July, government figures showed, as consumers turned to more energy efficient vehicles and refiners exported to booming overseas markets.

Japan's oil product demand is expected to fall 1.8% per year on average up to the fiscal year starting in April 2011, government projections show.

IPIC's investments include the Borealis Group, a major producer of polyethylene and polypropylene. It also owns 50% of Hyundai Oil Refinery, South Korea's third-biggest refiner.

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