Abu Dhabi Government's strategic investment arm adds to its large stock of global assets
Patience pays off for Mubadala
Investments made by Mubadala Development are paying off as the company adds to its large stock of global assets, raises money from international investors and attracts new talent to help provide financial and social returns to the Government. Mubadala, the Abu Dhabi Government's strategic investment arm, was founded in 2002 as a key component in Abu Dhabi's long-term plan to diversify its economy away from reliance on petrochemicals.
It saw many of its investments post strong returns last year, leading to Dh8.6 billion (US$2.34bn) of total profits. The results, outlined in Mubadala's annual financial statements, represented a stark reversal of the Dh19.8bn of losses in 2008. "From my perspective as a macroeconomist, there are the signs there to indicate they're making progress," said Giyas Gokkent, an economist at the National Bank of Abu Dhabi.
"When you drive on Abu Dhabi's roads things seem to be getting clogged up, so I think there is a desire to move ahead in investing in infrastructure, metals and tourism on Saadiyat Island and Yas Island." Among Mubadala's most successful investments last year were a stake of nearly 20 per cent in the US microchip maker Advanced Micro Devices (AMD); the company's Strata project, which aims to produce composite materials for aircraft parts; and Emal, an aluminium smelter that began production last December.
The Imperial College London Diabetes Centre, opened in 2006 and fully owned by Mubadala, also showed strong growth in patient consultations last year. The AMD investment, which Mubadala made as part of a deal in which the Advanced Technology Investment Company (ATIC) agreed to take over AMD's chip making facilities in late 2008, added Dh4.2bn to Mubadala's profits last year. AMD stock was one of the best-performing in the world last year, with appreciation of more than 300 per cent. ATIC is owned by the Abu Dhabi Government but is not part of Mubadala.
Strata, an aircraft-parts making plant in Al Ain, also made significant progress last year. Construction of the plant began last June, and the first phase of the facility, encompassing 21,600 square metres of space, is slated for completion by the end of this year. Strata has already signed contracts worth Dh4.8bn with a few of the world's largest aerospace companies, including EADS, Airbus and Alenia Aeronautica, to make parts at the plant.
The plant is expected to be completed in three phases, eventually growing to more than 60,000 sq metres of production area. Emal, a joint venture between Mubadala and Dubai's Dubal, also took a big step last year with the first production of finished aluminium in December. While Emal continues to lose money - it posted a loss of Dh521m last year, according to Mubadala's statements - the project has been delivered on time and under budget, according to the company.
With a price tag of Dh20.9bn, Emal is the largest industrial development in the UAE outside the oil and gas sector, Mubadala said in an annual report released on Sunday. Sven Behrendt, an associate scholar at the Carnegie Middle East Centre in Beirut, said the investments in Emal, Strata and a West African bauxite company could represent an attempt by Mubadala to exercise control over the entire supply chain for the industries in which it invests.
Bauxite is the primary raw material for aluminium, while aluminium features prominently in aircraft manufacturing. "I could see a vertical integration across the value chain in alumina and aluminium and final products to the aviation industry," Mr Behrendt said. "They own 8 per cent in a bauxite mine [Guinea Alumina], which produces alumina that can be turned into aluminium [by Emal]. "You serve the global market but you also go into aerospace and become a supplier of components to the aerospace industry. That somehow makes sense to me."
As companies and partnerships Mubadala helped to start in recent years begin to mature, the company reported total assets worth Dh88.5bn at the end of last year, up from Dh50.4bn a year before due to large additions to a portfolio of investments ranging from aerospace to financial services. Mubadala owns stakes in The Carlyle Group, a private equity company based in the US; John Buck International, a global property services company; Pearl Energy, an oil and gas exploration and production company based in Singapore; and Aldar Properties, one of Abu Dhabi's largest developers. It also owns 5 per cent of Ferrari, the Italian car maker.
Mubadala's mandate has been to invest for the long term locally and internationally to help accomplish economic aims laid out in Plan Abu Dhabi 2030, a comprehensive road map for the emirate's development. The company's patient approach often means paying large sums of money to seed businesses that do not turn profitable for years. "Benefiting from the patient support of its shareholder, Mubadala enjoys a rare competitive advantage in its ability to take a long-term perspective when evaluating and harnessing opportunities," said Mubadala's chairman, Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, in a statement released with the company's annual report.
"This approach will continue to serve the company well in the years ahead." Mubadala last year raised $1.85bn through a bond sold to international investors, broadening its base of funding and leading to less reliance on government financing. The company said it drew down about half of its government allocation last year. Mubadala also reported its staff numbers rose to 622 last year, a rise of 36 per cent from 2008.