Abu Dhabi SWF and UBS Form $500 Million Joint Venture

By Mike Caggeso
Associate Editor

UBS AG (UBS), Europe's largest bank, and Abu Dhabi Investment Co. (ADIC), the United Arab Emirate's state-controlled sovereign wealth fund, announced they will start a $500 million joint venture that will invest in infrastructure projects.

Much of the fund will focus on utility, transport, social and energy-related projects in the Middle East and North Africa. ADIC chairman Khalifa al-Kindi told reporters he expects the fund to launch in the first half of this year, Gulf News reported Monday (yesterday).

"The [Middle East and North Africa] region is going through a phase of profound expansion which has led to an increased demand for infrastructure to support continued growth and the fast growing populations," Khalifa al-Kindi said.

"The bringing together of a major regional and a major global player with excellent deal sourcing and deal execution abilities will put us in a tremendous position to take advantage of the significant investment opportunities in the regional infrastructure market."

That is further evidenced by the fund's annual target return rate of 15% to 20%. The fund will be open to all investors and from them the fund hopes to achieve its $500 million goal, Bloomberg reported. If all goes according to plan, that figure could be as high as $500 billion sometime in 2008, al-Kindi said. 

Other European banks have made similar deals recently.

In November, HSBC Holdings PLC (HBC) partnered with Dubai International Capital LLC and Oasis International Leasing Co., raising a $300 million fund to invest in Middle East and North African projects. A month earlier, Deutsche Bank (DB) and Abraaj Capital Ltd. said they raised $1.2 billion for a Middle East and South Asia infrastructure fund, Bloomberg reported.

The Abu Dhabi-UBS venture also follows a string of outside investments made by Middle Eastern sovereign wealth funds whose government-controlled bankrolls grabbed sizable stakes in blue-chip companies around the world.

  • Nov. 27: Abu Dhabi pours $7.5 billion into ailing Citigroup Inc. (C). 
  • Nov. 26: Dubai International Capital, a state-owned holding company, acquired an undisclosed stake in Japan's electronics and media juggernaut Sony Corp. (SNE).
  • Nov. 16: Abu Dhabi invested $622 million (an 8.1% stake) in California-based microchip-maker Advanced Micro Devices Inc. (AMD).  
  • Oct. 20: Dubai International Capital agreed to invest $1.26 billion in the initial public offering of hedge fund Och-Ziff Capital Management Group LLC (OZM).
  • Aug. 22: Dubai World, another investment arm of the state, plunked down $5.1 billion for a 9.5% stake in MGM Mirage (MGM).  
  • Aug. 14: Istithmar, part of Dubai World, was cleared to buy Barneys New York Inc. for $942.3 million from Jones Apparel Group Inc. (JNY).

U.S. and European companies are seeking capital as their economies have slowed [in addition to emerging market opportunities], and Middle Eastern sovereign wealth funds are using that as leverage to invest in them at bargain prices.

And in their race to buy assets around the world, these sovereign wealth funds are finding themselves increasingly competing with each other. Abu Dhabi's joint venture with UBS probably didn't go over well with Kuwait - owner of the world's oldest sovereign wealth fund - which announced a few weeks ago that its would like to invest in capital-starved European banks.  

"We are interested if we are invited" to invest, Bader al-Saad, the fund's diplomatic managing director, told reporters at the World Economic Forum in Davos, Switzerland, remaining just as mindful of public relations as Saudi Arabia's al-Jasser. 

Kuwait's SWF has already invested in U.S. banks with a $3 billion investment in Citigroup and a $2 billion investment in Merrill Lynch & Co. (MER). 
Analysts aren't expecting a slow down of SWF spending sprees in 2008. On top of more spending from Middle Eastern SWFs, India is taking steps to launch its own SWF. And China just finished taking applications from more than 100 drooling money managers to help invest the country's $200 billion SWF, China Investment Corp. 

News and Related Story Links:

  • Gulf News:
    ADIC ties up with UBS for joint venture