Structure

Mubadala was established in 2002 by the government of Abu Dhabi to play a leading role in its strategy to diversify the emirate’s economy through long-term investments that bring both financial and social gain.

The firm is led by a board of directors, headed by Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed al-Nahyan. Chief executive officer Khaldoon al-Mubarak sits on the board and also the investment committee, the four-member team that has ultimate responsibility for the firm’s investment decisions. Beneath that sits the senior executive management team.

Mubadala’s portfolio of investments and operating companies is split across nine divisions: aerospace, capital, oil and gas, healthcare, industry, information and communications technology, renewable energy, real estate and infrastructure, and services. Through these, Mubadala has developed partnerships with the US’ GE, semiconductor company Advanced Micro Devices (AMD), and oil and gas exploration and production firm Occidental Petroleum, as well as French aircraft manufacturer Airbus and oil company Total. The aim is to bring international expertise to Abu Dhabi and create jobs for Emiratis.

Operations

In the first half of 2012, Mubadala reported revenues of AED16bn ($4.36), up 18 per cent on the same period in 2011, driven by semiconductor business Globalfoundries, a division of Advanced Technology Investment Company, Mubadala Petroleum, Mubadala Aerospace and Al-Yah Satellite Communication Company.

Domestically, Mubadala has also developed three universities through public-private partnerships (PPPs): the Paris-Sorbonne University Abu Dhabi, UAE University and Zayed University Abu Dhabi. Through its real estate arm, it is also responsible for many key developments in Abu Dhabi, including Al-Maryah Island.

Increasingly, Mubadala is expected to start moving out of the real estate sector and hand over its responsibilities to the private sector.

One of its major strategic projects is the development of the Abu Dhabi Future Energy Company (Masdar), a collection of renewable energy initiatives. These include Masdar City, a plan to develop one of the most sustainable cities in the world; Masdar Capital, which will invest in renewable energy and clean energy technology companies; Masdar Institute, a research body with cooperation from the Massachusetts Institute of Technology; and Masdar power, which is developing renewable power projects.

Mubadala is also a significant shareholder in Dubai telecoms firm Du; Emirates Aluminium (Emal); Etisalat Nigeria; GE; AMD; and US private equity firm Carlyle Group.

Its operations stretch beyond Abu Dhabi and Mubadala’s assets also include the development of Medini, a new city in Malaysia; Viceroy Maldives, a luxury resort in the Maldives; Prodea Systems, which provides home entertainment in Texas, US; Guinea Alumina Corporation, an alumina refinery in West Africa; power plants in Oman and Algeria; and oil and gas assets in Libya, Oman and the Caspian Sea.

Ambitions

Broadly, the company was created to help Abu Dhabi achieve its 2030 plan. This ranges from infrastructure development to job creation and cultural projects. It also aims to stimulate the development of the domestic financial markets, create a sustainable economy and promote balanced economic growth across the emirate.

Mubadala plays an active role in each of these. By partnering with world-renowned universities and using PPP structures, Mubadala hopes to both develop new methods of funding projects and improve local education opportunities. Through Masdar, it aims to stimulate development outside Abu Dhabi city, create jobs and promote renewable energy sources.

In a relatively short period of time, Mubadala has become well-known around the region and has gained a reputation as one of the most sophisticated regional investment companies.

Analysis Mubadala’s financing strategy

Mubadala has received a total of AED111bn ($30bn) of contributions from the government in various forms, including direct support and land grants. This is used to help finance its investment activities, although the company tops up that amount with bank borrowings and bond issues, which totalled about AED42bn ($11bn) at the end of the first half of 2012.

As a result, Mubadala has become one of the best-known and well-followed regional companies. It has an investment grade rating of Aa3 and AA from Moody’s and Standard & Poor’s respectively, backed up by the strong support of the government of Abu Dhabi.

This is perhaps one of the areas where Mubadala has been most successful. Abu Dhabi and its government-related entities (GREs), particularly Mubadala, are well respected in the capital markets. Bankers say it is one of the more professional firms in the region in terms of handling its relationships with lenders. Mubadala’s focus on capital markets has enabled it not only to open up the debt markets for other Abu Dhabi borrowers, but also to play a leading role in developing new ways to fund regional projects. Already it has pioneered using PPPs to develop social infrastructure projects, and it is working hard to develop the project bond market.

In early 2013, the company is expected to raise about $1.25bn from bond investors to help finance the second-stage development of its Emal project. In the past, the Dolphin Energy project, which imports Qatari gas to the UAE and in which Mubadala is an investor, has also tapped the bond markets. The move is welcomed as a sign that long-term bank debt will be refinanced through the capital markets, giving banks the ability to make new loans. At a time when long-term lending looks increasingly unattractive for banks, moves like this will be necessary to ensure that banks still have the resources to fund the sheer volume of development projects planned.

The Abu Dhabi government has made developing the debt markets one of its strategic priorities, and Mubadala has played a key part in that through its financing initiatives.

More recently, the government has taken steps to get its GREs’ borrowing under control. In the summer, it set out a policy stipulating that all GREs need to apply for a sovereign guarantee for their borrowings and not let investors think they would get government support if it was not explicitly in place. As one of the emirate’s most strategic entities, Mubadala is expected to still benefit from state backing.

Perhaps more significant is the strengthening that has been going on at the Debt Management Office, which will encourage more coordination between the borrowing activities of GREs, and the wider review of spending going on within the Abu Dhabi government. That review has already led to a significant slowdown in development activity in the emirate, and it is still not clear that this process is over.

Mubadala’s short-term financing objectives are not likely to be affected by this. A much more cautious outlook is emerging from Abu Dhabi, eager to avoid the mistakes that led Dubai into a crippling debt crisis by allowing its GREs to get into an uncontrolled borrowing spree to fund speculative investments. Over the medium term, Mubadala could become much less aggressive in its investments, and in how much debt it takes on to finance them.

Company snapshot

Date established 2002

Main business sector Diversified

Main business region Abu Dhabi

Chief executive officer and managing director Khaldoon Khalifa al-Mubarak

Website www.mubadala.ae

Telephone (+971) 2 413 0000