$125B Sovereign Wealth Fund Merger in Abu Dhabi

Abu Dhabi’s government has merged two of its sovereign wealth funds called Mubadala Development Co and International Petroleum Investment Co (IPIC) into a new single entity called Mubadala Investment Company (MIC) with assets totalling about $125 billion on 21 January 2017. Government sources said the move was to cut costs in response to drop in oil prices in the global market and to diversify investments away from oil to other viable sectors.

The government said the joint venture will “run operations in acquisition, development, construction, financing, operation, and investment in various sectors”.

According to the government, integrating the two entities would create greater benefit and enhanced economic value to them.

IPIC owns corporate stakes in the energy industry and other sectors across the world. The new fund, Mubadala Investment Co, becomes the world’s 14th largest sovereign fund according to the data available with Sovereign Wealth Fund Institute.

The Abu Dhabi government also named Mubadala Development’s current group CEO Khaldoon Khalifa Al Mubarak to run the new sovereign fund.

Government sources say the merger of the two wealth fund giants will enable Abu Dhabi to face the demands of competitive world, where size matters. The measure by the major sheikhdom in the oil-rich United Arab Emirates, comes as a cost-cutting measure in response to the low prices of the commodity in the global market.

According to government the high-level merger is needed as the emirate government attempts to combine state assets to cut costs in response to drop in oil prices and diversify investments away from oil to other viable sectors. In the wake of oil prices at about half their levels in mid-2014, sovereign funds across the rich Gulf Arab oil exporting states have to adjust policies to adapt themselves to lower inflows of petrodollars.

The merged entity’s large size is expected to enable it to raise money from international market. Mubadala Investment Company would conduct partnerships and businesses in 30-plus countries. It will infuse synergies and growth in various sectors including the energy and utilities sector, technology, aerospace, industry, health care, real estate, and financial investments.

According to the Emirate government, the combined entity would realize synergies and growth in multiple sectors including the energy and utilities sector, technology, aerospace, industry, health care, real estate, and financial investments. It would also have the ability to contribute more significantly to the diversification of the economy, in line with the Abu Dhabi plan and the country’s long-term vision.

As a part of its measures to strengthen its financial institutions, Abu Dhabi is initiating the process of merging of several institutions like the proposed merger of two largest banks, National Bank of Abu Dhabi and First Gulf Bank.

For more information see: http://www.mubadala.com/en/merger