Abu Dhabi's TAQA is in talks with the three largest shareholders of Spanish energy firm Naturgy with a view to a possible takeover bid, it said on Wednesday.
With a market value of $22 billion on Tuesday, a takeover of Naturgy would be the largest by a sovereign wealth fund, Diego Lopez of fund tracker Global SWF said.
TAQA, a power and water utility founded in 2005, would acquire Spain's largest gas firm, together with contracts with Algeria and also a long-term contract to import some 3 billion cubic metres (bcm) of Russian liquefied natural gas (LNG) every year.
TAQA said it is in talks with private equity firms CVC and GIP, each owning more than 20% of Naturgy with a combined value of some $9 billion, to buy their stakes.
CVC and GIP are both leaning towards selling their stakes, two people with knowledge of the situation told Reuters, speaking on condition of anonymity. Both funds declined to comment.
TAQA also said it was talking to Naturgy's largest shareholder, Criteria, which owns a 26.7% stake about a possible partnership agreement.
It also said there was no guarantee a deal would happen and, if it were to, under what terms. It added it had not approached Naturgy directly.
Naturgy's shares were up almost 6% by 1115 GMT.
Government Role
Spanish rules require a mandatory tender offer when a buyer wants to acquire more than 30% of a publicly traded company.
They also require any deal to be approved by the Spanish government.
Relationships between Madrid and Abu Dhabi were strengthened two years ago, when the two governments agreed to create a strategic partnership.
Speaking to reporters in Washington on Wednesday, Economy Minister Carlos Cuerpo said the government will evaluate the potential operation when and if such materialises, declining to predict the outcome.
He said Spanish rules for acquisitions by foreign firms allowed to achieve "a perfect balance between protecting our companies, our strategic interests and attracting direct foreign investment."
Naturgy declined to comment, as did Australian fund IFM, which holds a 15% stake in Naturgy. Criteria also declined to comment beyond a statement on Tuesday in which it said it was in discussions with an investor group.
The gas business accounted for 57% of Naturgy's core earnings last year. However, it is also expanding its renewable energy operations that reached around 6.5 GW of installed capacity at the end of last year.
Located at the crossroads of the U.S., Europe and North Africa, and boasting the European Union's largest number of import terminals, Spain has become a regional hub for LNG.
TAQA operates in about 10 other countries besides the United Arab Emirates.
A unit of Abu Dhabi sovereign wealth fund, ADQ owns just over 90% of the company. Gas accounted for over half of TAQA's production mix last year.