Sovereign Wealth Fund Institute

We have all witnessed the trend of some sovereign wealth funds raising private capital or creating sovereign wealth enterprises to act as an investment manager for private funds.  This article is to bring some clarity on why a number of funds are doing this.  With Mubadala raising $1.85 billion in medium term notes, Temasek Holdings multiple debt raises in denominated in multiple currencies, and Mumtalakat Holdings bond offering, it shows that SWFs are using their assets, not just their cash as an investment.

First off, most SWFs that are raising capital are the types of sovereign wealth funds that take large stakes in companies.  In addition, SWFs that hold large portions of their domestic industry would be the type of funds to engage in this behavior.  We most likely would not see the Abu Dhabi Investment Authority or the Norwegian GPFG raise capital or take on bank loans.  In some instances, SWFs experience shrinkage of money flows from their respective government; money in the private markets backed by SWF assets can increase their stability and investment performance.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

According to the press release, “Goodrich Corporation (NYSE: GR) and Mubadala Aerospace, a business unit of Mubadala Development Company, today signed a heads of agreement (HOA) to establish a joint venture company in the United Arab Emirates (UAE) to perform maintenance, repair and overhaul (MRO) work on landing gear. The joint venture company would be the Middle East’s first dedicated landing gear service provider once fully operational in 2012. The joint venture is subject to negotiation and execution of the definitive joint venture agreement.

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According to the press release, “Abu Dhabi Aircraft Technologies (ADAT) and Sikorsky Aerospace Services today announced the launch of a joint venture to provide world class military aviation Maintenance, Repair and Overhaul (MRO) services to the United Arab Emirates (UAE) Armed Forces and other military operators internationally, including in the wider Middle East and North Africa region.

ADAT is wholly owned by Mubadala Development Company, the strategic investment arm of the Abu Dhabi Government, in the United Arab Emirates. Sikorsky Aerospace Services is the aftermarket business of Sikorsky Aircraft Corp., a subsidiary of United Technologies Corp. (NYSE: UTX).

The joint venture, known as AMMROC (Advanced Military Maintenance, Repair and Overhaul Center), brings together ADAT’s military track record of high quality and reliable maintenance services, and Sikorsky Aerospace Services’ Original Equipment Manufacturer (OEM) expertise.

With the combined strength of the joint venture parties and an aggregate investment that exceeds US$800 million, AMMROC will draw on decades of experience and expertise in aerospace engineering, material support, logistics, maintenance, component repair, overhaul and training to deliver a fully integrated MRO support program by a single provider. This will enable AMMROC to provide innovative platform solutions for all fixed and rotary wing aircraft, to ensure guaranteed aircraft readiness, deployability, improved safety and self reliance.

Read more: Press Release

According to Emirates Business 24/7, “Mubadala Development Company and Pramerica Real Estate Investors, a unit of US-based Prudential Financial, have agreed to set up a company that will raise capital to fund and invest in real estate projects in Abu Dhabi and other international markets.

Mubadala Pramerica Real Estate Investors (Mubadala Pramerica REI), the joint venture, will be owned equally by the two companies and will be headquartered in Abu Dhabi.

“The joint venture will become operational soon, but we are not in a position to specify a date,” a Mubadala spokesperson told Emirates Business.

In a press statement, Waleed Al Muhairi, Chief Operating Officer for Mubadala, said: “By partnering with Pramerica, we’re bringing together one of the world’s leading real estate investment companies with our regional market expertise and knowledge. This is a compelling prospect for investors that want to participate in the current and future growth of the region.”

The joint venture, according to the spokesperson, will only raise capital to fund and invest in real estate projects and will not develop, or act as a developer of real estate projects.

“The JV will be contracting with real estate developers to build and develop the real estate projects it will invest into.”

Mubadala has already set up two other joint ventures for development purposes.”

Emirates Business 24/7

According to Gulf News, “Mubadala has retained its position among the world’s top eight most transparent sovereign wealth funds. Mubadala has retained its position among the world’s top eight most transparent sovereign wealth funds

Dubai: The UAE’s Mubadala Development Company has retained its position among the world’s top eight most transparent sovereign wealth funds according to the Linaburg-Maduell Index, the only one of its kind. Ranked from zero to 10, Mubadala has retained its score of 10 in the first quarter of this year on the index, which was developed at the US-based Sovereign Wealth Fund Institute by Carl Linaburg and Michael Maduell.

Mubadala, owned by the Government of Abu Dhabi, does not consider itself a sovereign wealth fund. It manages long-term capital-intensive investments. It has a multi-billion-dollar regional and international portfolio ranging from services to infrastructure to aerospace.

It helps to deliver some of Abu Dhabi’s most high profile and strategically important projects.

“Mubadala has adapted well to our expanding size and profile, introducing a range of policies to ensure our operations maintain their efficiency and transparency,” CEO and Managing Director Khaldoon Khalifa Al Mubarak said in a foreword to the annual report for 2009.”

Read more: Gulf News

According to the press release, “HRH Prince Alwaleed bin Talal bin Abdulaziz Al Saud, Chairman of Kingdom Holding Company (KHC) received, and held a meeting with HE Khaldoon Al Mubarak, CEO of Mubadala Development Company (MDC) at HRH’s office in Riyadh. The meeting was attended by a delegation from KHC, Rotana and Mubadala Development Company.

On the agenda of discussions during the meeting between HRH and Mr. Al Mubarak, were His Highness’s solid regional presence in the various sectors, including real estate, hotels and media. Moreover, the meeting touched upon local, regional and international economic and investment issues, and future potential business collaboration. After the meeting the Prince hosted a dinner in honor of his guest and the accompanying delegation at Kingdom Resort.

Prince Alwaleed’s investments in the UAE through Kingdom Holding Company consist of Citigroup in the financial and in the hotel sector through the management of two Fairmont hotels, and four Movenpick hotels.”

Read more: Press Release

The National reports, “Air Berlin and Etihad Airways have signed up for US$130 million (Dh477.4m) worth of financing provided by a new company controlled by Mubadala Development, the Abu Dhabi Government investment arm.

The new entity, called Sanad Aero Solutions, will provide financing and logistical support with a focus on aircraft engines and components.

Sanad – Arabic for “support” – adds another layer to Mubadala’s aerospace strategy, which includes plans to manufacture composite aircraft parts for Boeing and Airbus in Al Ain, and to build an aircraft in Abu Dhabi by 2018.

The company will provide financial support to airlines outsourcing their maintenance and repair work to two Mubadala affiliates, SR Technics in Switzerland and Abu Dhabi Aircraft Technologies (ADAT). Sanad’s first contracts involve a 10-year, $100m deal with Air Berlin for 12 spare engines and a 10-year, $30m contract with Etihad for components.”

read more: The National

According to the National, “Mubadala Development, the investment arm of the Abu Dhabi government, will grow its assets threefold over the next five years, the company’s chief operating officer said today. The firm lost Dh11.8bn (US$3.21bn) last year due to write-downs on investments triggered by falling oil prices and the global financial crisis. Mubadala, which released its first annual report last week, has said it would continue to make acquisitions, borrow from banks and draw as much as Dh21bn from the Abu Dhabi Government this year.

‘Over the next five years, given the existing portfolio of projects that we have, you will see that the asset base of Mubadala is likely to to grow from the Dh54bn that you see today to a number at least three times that,’ said Waleed al Muhairi at the UAE Global Investment Forum in Abu Dhabi.

Mubadala is planning to issue a bond and has recently engaged in a roadshow with potential investors in Europe and the US. The bond will be part of a larger medium-term programme.”

read more: The National

AFP reports that, “French state-controlled nuclear giant Areva said Tuesday it was opening its capital to new investors and would sell a subsidiary to raise money for massive investments in new nuclear technology.

The company also said it was considering the sale of its stakes in French metal mining group Eramet and Geneva-based computer chip maker STMicroelectronics. The Financial Times reported earlier that the French government was preparing a capital increase and could sell a 15-percent stake to Asian and Middle Eastern investors for two billion euros (2.8 billion dollars).

The FT reported Mitsubishi Heavy Industries (MHI), Areva’s Japanese partner, was set to take a stake in the French company. MHI told AFP it had not received an offer to buy a stake but would study such a proposal. The French government is also in talks with sovereign wealth funds such as Mubadala of Abu Dhabi over their participation in a capital increase, which will be launched later this year, the FT said. France produces most of its electricity from nuclear power and French energy groups like EDF, Total and GDF Suez have previously been touted as possible investors in Areva. The report comes amid growing interest in nuclear power around the world, sparked by fears of climate change, worries about the reliability of supplies from the Middle East and Russia and record high oil prices in 2008.”

read more: AFP

Khaleej Times reports that, “Mubadala Development Company, an investment arm of the Abu Dhabi government, on Tuesday signed a deal to explore joint investment opportunities in French companies. The memorandum of understanding between Mubadala and France’s Fonds Strategique d’Investissement, or FSI, aims to set up a framework for investing in sectors that are of mutual interest to both the companies. Potential areas for investment in listed or private French companies include technology, health sciences, bio-technology and renewable energy. The MoU was signed during a visit by French President Nicolas Sarkozy to the UAE capital.

‘This partnership fits into our strategy to work with leading international organisations across a range of industries to develop and operate businesses that not only generate outstanding financial returns but also contribute to the economic diversification of Abu Dhabi and bring real and lasting benefits to its people,’ said Mubadala CEO and Managing Director Khaldoon Khalifa Al Mubarak.”

read more: Khaleej Times

The press release states, “Occidental Petroleum Corporation and Mubadala Development Company (Mubadala), through its business unit Mubadala Oil & Gas, announced today that they have signed a Development and Production Sharing Agreement (DPSA) with the National Oil and Gas Authority of Bahrain (NOGA) for the further development of the Bahrain Field. Under this agreement, a Joint Operating Company will be formed to serve as operator for the project under the DPSA.

Oxy will hold a 48-percent interest in the DPSA, with Mubadala holding a 32-percent interest and a subsidiary of NOGA holding the remaining 20 percent.

‘We are pleased to expand upon our existing relationship with Abu Dhabi and look forward to working with Bahrain on this exciting project,’ said Dr. Ray R. Irani, Chairman and Chief Executive Officer of Occidental. ‘Signing this DPSA is another important step in the implementation of our growth strategy in the Middle East, and the further development of the Bahrain Field will create significant value for the people of Bahrain and for our shareholders.’”

read more: Press Release

Some highlights of the report state, “Also included in the Annual Report is detailed information about Mubadala’s financial performance for the calendar year 2008 – a period of rapid business development. Mubadala’s total assets grew from AED39 billion in 2007 to more than AED54 billion by the end of 2008, representing an increase of 40 percent over the previous year. The company also saw sharp increases in revenues, up by more than 370 percent to AED6.7 billion compared to AED1.8 billion for 2007.

The strong performance was offset by the company’s cautious approach to the valuation of some investments as a result of the decline in Global stock-markets (the S&P 500 Index of leading stocks fell by more than 38% in 2008) and oil prices (which halved between January and December 2008, and ended the year more than two thirds down from their peak in July). This resulted in impairment charges for 2008 of AED8.8 billion spread across a wide variety of publicly and privately held investments in the USA and other markets and contributed to a loss of AED11.8 billion in 2008 against a profit of AED1.3 billion the year before.”

read more: Mubadala

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According to the Khaleej Times, “Four Memoranda of understanding (MoUs) were signed yesterday between Abu Dhabi’s investment arm Mubadala Development Company, its associated firms and top South Korean companies which will open new vistas of economic cooperation.

The MoUs focus on development of oil and gas resources, automobile manufacturing, iron and steel,  science and technology and cooperation in the district cooling sectors.

The MoUs were signed on the sidelines of the one day UAE-Korea Business Forum, which was attended by Abu Dhabi’s leading companies and a visiting delegation of top Korean companies.

Speaking to Khaleej Times Waleed Al  Mokkarab Al Muhairy, Chief Operating Officer of Mubadala Development  Company, said that MOUs would pave the way for the development of joint ventures and formation of business alliances, not only in the UAE  and Korea, but  also in third countries.

“There are no concrete projects at hand, but after the signing of these four MoU’s  we have identified the key areas of cooperation on which our technical experts would further work on,” Al Muhairy said.

The MoUs were signed between Mubadala Development Company and Korean National Oil Company (KNOC) to develop hydrocarbon resources;  Kia Motor Corporation signed an MoU with Mubadala to develop hybrid vehicles and technical cooperation; Posco, a Korean giant will cooperate in the establishment of a mini steel mill project in Abu Dhabi and an MOU was signed between Posco and Science and Development Company of Abu Dhabi.”

Read more: Khaleej Times