Mubadala is set to get a sweetheart deal on the Carlyle Group's coming initial pubic offering.
Key role for Mubadala in Carlyle's market float
Mubadala Development, a strategic investment company owned by the Abu Dhabi Government, is among the first to benefit from an initial public offering (IPO) announced yesterday by the Carlyle Group, a major global buyout firm.
Mubadala has invested hundreds of millions of dollars in Carlyle that will convert into a substantial publicly traded share if the listing is given the green light by regulators, according to documents released in Washington.
The conversion will give the Abu Dhabi company new Carlyle shares at a 7.5 per cent discount to the IPO price.
Mubadala may own a maximum of 19.9 per cent of the company, the prospectus shows, and it will be granted a seat on the Carlyle board so long as its shareholding is maintained at a certain level.
Carlyle has not set a date for the IPO.
Carlyle is one of the most prestigious buyout firms in the world with a roster of former world leaders and top politicians in its ranks.
John Major, the former British prime minister, is still on its board while George HW Bush, the former US president, left the company in 2003.
Carlyle is best known for strategic investments in the aerospace and defence sectors but also has big holdings in automotive, consumer, retail, health care, property, technology, telecommunications and media.
The investments are focused on East Asia, Europe and North America, but the company recently launched a fund focused on the Middle East in which Mubadala plays a role.
Mubadala owned 9.35 per cent of Carlyle as of the end of last year, according to the Abu Dhabi company's annual report. Its additional stake is related to a US$500 million (Dh1.83 billion), 10-year loan it made to Carlyle last December that is set to convert into equity.
The debt is "exchangeable for additional equity interests" in Carlyle "at a 7.5 per cent discount to the IPO price", the prospectus says.
Since it is not yet clear how many shares Carlyle will issue and at what price, it is not possible to tell what Mubadala's additional shareholding will be - or how much it will be diluted by the pool of new IPO shares.
A seat on Carlyle's board has also been cleared for Mubadala so long as it owns at least 7.5 per cent of the company after flotation. If it meets regulatory approvals, Mubadala may "require us to cause one person nominated by Mubadala to be appointed to the board of directors", the prospectus says.
In launching its IPO, Carlyle is joining rivals the Blackstone Group and KKR in seeking a public shareholding after years of operating as a private partnership. Carlyle intends to use the money it raises to pay down debt and for "general corporate purposes", according to filings with the Securities and Exchange Commission (SEC), the US stock-market regulator.
Mubadala, which was unavailable for comment, first invested in Carlyle in October 2007 with $1.35bn for a 7.5 per cent stake.
The second investment came in the form of the convertible loan. Mubadala gave the buyout giant $494m in cash in exchange for $500m worth of convertible Carlyle debt, plus additional equity that brought its total stake to 9.35 per cent, the Carlyle prospectus shows.
In addition to its investments in the company, Mubadala has made direct investments in Carlyle funds, although the amounts have not been disclosed.
After Mubadala made its investments, Carlyle launched a private equity fund that focused on the Middle East and North Africa, the firm's first such vehicle.
Carlyle opened its books for the first time with the publication of its IPO prospectus, which was filed with the SEC yesterday.
Since its founding in 1987, the private equity giant revealed it raised more than $112bn in capital and currently has $153bn in assets under management through 86 investment funds.
The company made a profit of $1.46bn last year and $664min 2009. Those gains followed a $514m loss in 2008 after the financial crisis hit, hurting returns and fee income for private equity companies.
Private equity firms bring wealthy investors and institutions into their funds and use the money to buy private companies. They then try to improve the performance of the companies before selling them on to other investors or offering shares to the public after three to five years. They typically make money by charging management fees to investors, as well as taking a share of returns on investments.
Buyout companies have risen to prominence alongside hedge funds and other alternative investment vehicles as investors sought a more diverse set of opportunities than stocks and bonds.