THE EVOLUTION OF A PIONEERING INVESTOR
▶ CEO Khaldoon Al Mubarak tells Mustafa Alrawi that post-merger Mubadala Investment Company is already swiftly moving forward with new investments
Khaldoon Al Mubarak paints a picture of a company on the move and of a chief executive satisfied that it has a solid foundation from which to move forward with confidence. Under his watch, Mubadala Investment Company stands as a strong entity following its recent consolidation, its structure forged following the completion in May of the coming together of Mubadala Development and Ipic.
The new Mubadala has already taken its first steps into the future and its path is clear, says Mr Al Mubarak, clearly pleased with the company’s progress so far, and feeling relaxed ahead of the announcement of its first interim results as a new entity later in the day.
“We continue by the way today to evolve, as we enter into new sectors, and we’re deploying capital in a swift effective way,” says Mr Al Mubarak. He gives the example of Mubadala Investment’s US$15 billion (Dh55bn) commitment to Softbank’s $100bn technology-focused Vision Fund, announced in May, in which Saudi Arabia’s Public Investment Fund is also a participant. The tie-up has opened up a whole avenueof fresh opportunities in new and disruptive companies for Mubadala Investment.
“We have been active [for] the last six weeks over this partnership; we have deployed significant capital already into very different companies around the world, from China to the United States to Europe. That gives us insights into very attractive deal flow in a sector that is important for us as we look to the future diversification of Abu Dhabi and our portfolio within Mubadala Investment Company.”
Its relationship to the emirate of Abu Dhabi – whose government is Mubadala Investment’s shareholder – and the vision of a future when the local economy is fully diversified away from its dependence on oil revenues, have been key guiding principles since the inception of both Mubadala Development in 2002 and Ipic in 1984. Both investment funds had the remit to use Abu Dhabi’s natural petroleum wealth to help build future prosperity for its people by investing that wealth across sectors around the world.
Ipic – International Petroleum Investment Company – was, as its full name suggests, focused on energy-related assets. Mubadala Development’s portfolio, by contrast, was the very definition of diverse, with a strategic focus also on the development of human capital, job creation and knowledge transfer – the building blocks for the future diversified economy.
Before the announcement of their merger in June 2016, both Mubadala Development and Ipic had already been going through extensive changes, evolving amid macroeconomic challenges including the financial crisis and the crash in oil prices, and taking the necessary measures to deal with them.
While the initial announcement of their planned merger took many by surprise, the potential combination made immediate sense, and signalled that following years of consolidation of balance sheets that an era of new growth beckoned for two of the UAE’s most important investment institutions.
“The rationale was about efficiency and looking [in a] more strategic way [at] the future,” says Mr Al Mubarak.
“We had two companies that had a lot of synergies, in terms of their portfolios they complemented each other very well and the government saw that they would be more effectively managed for the future [together], particularly with the intention of the government to support the company in its growth to continue to be a big part of the diversification strategy of Abu Dhabi.”
What that looks like in practice following a “very smooth” merger is a single entity already deploying capital in significant sums through major deals into new sectors, as well as more familiar industries such as downstream oil & gas. Assets will be monetised when judged to be “ripe for monetisation”.
Mubadala Investment is focused on the twin goals of supporting its shareholder’s diversification strategy and returns, “healthy returns”.
“And then cycling back out into new sectors, new areas where we can achieve better returns,” says Mr Al Mubarak.
Financial results released yesterday, incorporating Mubadala Development and Ipic earnings statements from the first half of this year, showed a profit of Dh4.2bn compared to a loss of Dh4.7bn a year earlier, as revenues increased by 14.4 per cent.
Total assets stood at Dh465.5bn at the end of June, with the company organised into four main platforms. The petroleum & petrochemicals platform accounts for over 32 per cent of assets, alternative investments and infrastructure 28 per cent and technology, manufacturing and mining at 21 per cent. The aerospace, renewables & ICT platform accounts for 9.2 per cent.
“Our petroleum and petrochemical platform is strong, solid [and] diverse; upstream, midstream, downstream. Global in nature – South East Asia to North America to Africa and Europe.
“So it is quite a diverse portfolio both in terms of geography and in terms of assets,” says Mr Al Mubarak.
In April, Nova Chemicals, a 100 per cent owned Mubadala Investment subsidiary headquartered in Calgary, invested Dh7.7bn in an olefins plant in Louisiana, the largest refining and petrochemical production hub in North America. The deal, Mr Al Mubarak says, signals Mubadala Investment’s “intention to keep going on our existing platforms and in this case Nova Chemicals, supporting its growth strategy. This is a fantastic company”.
The alternative investments and infrastructure platform, which includes Mubadala Capital, also excites him; a recent tie up with European fund manager Ardian means the company will manage external capital for the first time.
“We are very proud of [this deal in particular] because it is not something that any other sovereign funds have done which is actually seeking or receiving third party capital to invest [and] more importantly deploy capital for our fund to manage in terms of investments,” says Mr Al Mubarak. “I think that is a very important step [and] it shows you how Mubadala Investment is evolving into a much more mature investment company.”
That maturity has been hard won, accompanied by significant growing pains over the years. Ipic, for example, lost $2.7bn in 2015 thanks to writedowns because of the drop in hydrocarbon prices. It also went through a protracted dispute with Malaysia’s 1MDB over $3.5bn in bonds it guaranteed for the state fund.
Mubadala Development also had its fair share of bumps in the road. A $2bn investment with Brazilian former billionaire Eike Batista soured after his commodities empire collapsed amid missed production targets.
“The mark of any successful investment company is its ability to pivot,” says Mr Al Mubarak. “By nature, you will have investments sometimes that don’t go the way you anticipated them to go. Sometimes it is about pivoting, other times it’s about restructuring. It’s about really making that business work in a different way while sticking to its core.” He cites Mubadala Development’s Brazil experience as a good example of a successful pivot, with assets recouped including $300m in cash, a stake in the owner of Burger King and Tim Hortons, and a port and gold mine.
“Today if you look at the assets we have in Brazil and the assets we have in South America in general off of that investment, I would say we are delighted. We have some phenomenal assets in terms of infrastructure, in terms of mining that I think longterm will be extremely successful for Mubadala,” he says.
In June, 40 per cent of its stake in district cooling company Tabreed was sold to France’s Engie, marking the successful conclusion of a turnaround, after the Dubai-listed firm was caught up in the property downturn in 2009.
Mr Al Mubarak says that Tabreed has been brought back to the forefront of its industry by bringing in “a great partner, that’s going to add value for growth”. Mubadala Investment has been able to monetise part of its holdings and achieve a rate of return, keeping a position in the company “because we believe in it”.
Mr Al Mubarak provides more colour on Mubadala Investment’s journey so far, highlighting its investment in chip developer AMD, which Mubadala Development made in 2007 with an initial investment of $622m. The shares subsequently went on a roller coaster ride, but Mubadala held on throughout, even increasing its stake. It eventually pivoted the holding into a broader manufacturing-related deal to benefit its GlobalFoundries chipmaking asset before divesting a chunk of its AMD shares in two transactions this year – in March and August – for a reported $1.1bn.
“It was extremely challenging at times [as] the stock took some difficult cycles over the years. We were patient, we continued to be a supportive shareholder, we were the largest shareholder in AMD for many years…now AMD it is doing extremely well, has a fantastic management team, the stock price has rebounded very nicely over the last 18 months and we took the opportunity this year to monetise 85 million shares of AMD, realising a healthy profit for Mubadala while maintaining a 12.9 per cent shareholding,” he says.
On the surface, this all may seem at odds with the relatively fiscally conservative atmosphere of Abu Dhabi. But the goal of securing future prosperity requires some calculated risks to be taken, notes Mr Al Mubarak.
“The UAE has to always look at the
The mark of any successful investment company is its ability to pivot. You will have investments that don’t go the way you anticipated them to go sq
future, we cannot be programmed to look at the past or only at the present. We need to look at the future and we need to always try to be ahead of the game. It’s not easy, it’s very challenging, that’s why sometimes you have to take risks. You have to have foresight but you also need a spirit of entrepreneurship to look to the future. That is our advantage, our advantage is we are able to be swift, to be quick, and to take some calculated risks in sectors that are for the future,” says Mr Al Mubarak.
Part of this strategy is the focus on key partners, like Softbank, which support the global and diversified investment approach needed to stay ahead of the game. Such partners need to be world class, he emphasises, with a shared investment approach and values.
“Partnerships have always been in the DNA of Mubadala. We have done that in almost every field we have been involved in, today we have over thirteen sectors that we are involved in, we are invested in, we are involved in over thirty countries, with significant portfolios in many of these countries, to do that effectively, you need partners. That’s always been a key emphasis of our strategy,” he says.
In the UAE, a partnership approach has also paid off with Emirates Global Aluminium, described by Mr Al Mubarak as an “industrial powerhouse”, a joint venture with the Dubai Government.
The company will soon have operations across the entire aluminium value chain; mining its main raw ingredient bauxite in Guinea, refining it into alumina in the UAE, which then moves on to the smelting process at facilities in Taweelah and Jebel Ali.
EGA is reportedly being prepared for a potential initial public offering, although Mr Al Mubarak will not confirm if such a move is in the works.
“What I can say right now is the company is growing its value chain proposition very well. Our aluminium smelters in both Taweelah and Jebel Ali are performing extremely well, both in terms of cost and in terms of profitability,” he says.
“Our investment in the alumina refinery is a significant investment here in the UAE, that is about 70 per cent now complete, it’s moving extremely well and our upstream investment in a bauxite concession in Guinea, which is approximately a $1.2bn investment that we are making as we speak in Guinea is very crucial to that value chain.”
“So really, EGA is growing extremely well and is going to be positioned, and already is I think now, a world class leader when it comes to the aluminium business.”