Abu Dhabi’s new $125bn fund taking shape
14 Feb 2017 - 22:37
Abu Dhabi is close to finalising the merger of two of its largest sovereign wealth funds, Mubadala Development Co PJSC and International Petroleum Investment Co. The combined entity, which will be known as Mubadala Investment Co, will become the 14th largest fund globally with about $125bn of assets, according to the Sovereign Wealth Fund Institute.
The emirate, home to about 6 percent of the world’s proven oil reserves, is cutting spending and merging companies after oil prices slumped about 50 percent over the past two years. Consolidation is mainly taking place in the financial services industry, including the megamerger of the emirate’s two largest banks National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC.
Cost is likely to be one of the considerations. Abu Dhabi is reining in spending as the decline in oil prices slows economic growth and plans to cut costs by combining the funds with common assets in areas such as energy, financial services and health care. The emirate also wants to create "an industrial and investment powerhouse that has every intention to keep growing," according to Mubadala Chief Executive Officer Khaldoon Al Mubarak (pictured) who will also be CEO and managing director of the combined company.
The merger will create an entity which can become a "real global player," according to Rachel Pether, an adviser at the SWFI. "Bringing IPIC and Mubadala under common control creates cost savings, efficiencies and will allow the new streamlined entity to aggressively pursue growth opportunities." It also gives the new company more "balance sheet flexibility," she said.
Mubadala CEO Mubarak will lead the new entity, while Mubadala Chairman Abu Dhabi Crown Prince Sheikh Mohamed bin Zayed Al Nahyan will assume the same role in Mubadala Investment. The fact that the company will take on Mubadala’s name and many of its executives will lead the merged entity, is a sign that Mubadala will be the more dominant force.
IPIC Chairman Mansour bin Zayed Al Nahyan will act as vice-chairman, while Energy Minister Suhail Al Mazrouei will be a board member of the merged company. The combined entity will have about $125bn of assets and $37bn of debt. IPIC has stakes in about 18 companies encompassing oil and gas exploration and production, marketing, petrochemicals and power in places like Kazakhstan, Austria, Pakistan and Portugal.
Mubadala’s holdings are more far-reached and include investments in oil and gas, aerospace, semiconductors and real estate in about 20 countries globally. Some of its higher-profile holdings include stakes in semiconductor producer Globalfoundries Inc and global private equity company Carlyle Group.
Energy represents potentially one of the biggest areas of overlap. The deal is set to create a global energy business with total assets greater than ConocoPhillips, combining production operations at Mubadala with IPIC’s focus on refining and distribution. SWFI’s Pether expects a "radical change in strategy" from the merged company. "The name change to Mubadala Investment Co suggests the new entity will be more about investing, rather than developing," she said. The new fund will continue to invest in the core Mubadala areas of energy, metals, technology, real estate, infrastructure, health care and aerospace, while expanding into new ones, according to Mubarak. The fund will also focus on technology acquisitions this year, he said in January.
Mubadala is considering committing $10bn to $15bn to partner with SoftBank Group Corp and Saudi Arabia’s Public Investment Fund in a new vehicle to invest in global technology, people familiar with the matter said last month.
IPIC is caught up in an investigation stretching from Switzerland to Malaysia to the US. The probe is looking at whether money might have flowed out of 1Malaysia Development Bhd., known as 1MDB, started by Malaysian Prime Minister Najib Razak, and into personal accounts.
1MDB amassed more than 50 billion ringgit ($10.5bn) of debt over six years, using some of it to buy energy assets, including joint ventures with companies in Abu Dhabi and Saudi Arabia.
IPIC last year denied ownership of a company that received $3.5bn from 1MDB and said it’s seeking $6.5bn from the fund and Malaysia’s finance ministry as part of the dispute.