Abu Dhabi National Energy Company (Taqa) has said that it was not holding merger talks.

The company “confirms that it is not engaged in merger discussions with any government or other entity”, it said in a brief statement to the bourse.

Sources familiar with the matter told Reuters that Abu Dhabi might merge its national energy company into another state-owned business to make the firm’s debts more manageable and try to turn around its performance.

Founded in 2005 and the only listed quasi-sovereign company in the Gulf emirate, Taqa went on an expansion drive to create an energy giant to rival international oil majors such as Exxon and BP.

Billions of dollars were spent on assets, with Canada and the North Sea among its favoured destinations, in areas including oil and gas exploration, underground gas storage, power generation and water desalination.

But the last 18 months have seen its strategy fall apart, with the huge debts taken on to fund its expansion and a big drop in oil prices calling into question its very existence.

“The company is embroiled in a battle for its future,” said a source close to the company, declining to be named due to the matter’s sensitivity.

After plunging to a fourth-quarter loss of Dh3.6 billion ($980 million), Taqa said it would slash capital spending by 39 per cent this year and make Dh1.5 billion of cost savings over the next two years. It is also conducting a review of its assets ahead of potential sales.

Now, Blackstone has been hired to advise on ways to tackle its debt pile, according to the source, with total liabilities reaching some Dh104.8 billion ($28.5 billion), according to its first-quarter financial statement.

Sources told Reuters that Taqa was raising a $3 billion five-year loan aimed as consolidating multiple debts into a single, cheaper facility.

Taking a first step to improve its debt situation could open the way to a merger with another state-owned company.

“It is the biggest stumbling block so by reducing the debt, Abu Dhabi can do whatever it wants and fold it into any other entity,” said the source, adding merger considerations were still at any early stage.