Mubadala: getting back in the groove

After a bit of a lull, Mubadala is back.  The announcement of a $2bn investment in Brazil signals a return to big-spending, strategic overseas moves that characterised the Abu Dhabi state investment company until the emirate ran into economic trouble in the last couple of years.

The $46bn diversified group mandated to generate financial and social returns is buying a 5.6 per cent stake in Eike Batista’s Brazilian EBX Group after a bit of a pause in its own operations and in the growth of the Abu Dhabi economy.

Oil-rich Abu Dhabi didn’t feel very rich last year. The capital had been the engine of the United Arab Emirates’ growth during neighbouring Dubai’s troubles after the global financial crisis.

But despite soaring oil prices prompted by the tumult of the Arab spring, a prolonged government spending review in 2011 left projects hanging in the balance, with contractors unpaid and redundancies across state-related entities in Abu Dhabi.

Mubadala, formed nearly a decade ago, faced some domestic criticism as projects were restructured and bailed out.

The Brazilian investment, Mubadala’s biggest spend in emerging markets, comes amid long-held beliefs in Abu Dhabi that both the company and the emirate itself have been underweight on emerging markets.

Modest deals into Nigeria, Indonesia and Russia, and a smelting tie-up last year in China, have now culminated in a landmark investment into Latin America – a region widely regarded as the final frontier for oil-rich Gulf funds seeking a way into the fast-growing continent.

But Mubadala, which has stakes in companies ranging from General Electric to the Carlyle Group, has not lost its interest in developed markets, as shown by its participation this year in a Sony-led bid for EMI music.

Analysts say Mubadala appeared to have had its wings clipped somewhat last year on the back of the government’s financial support for companies within the fund’s orbit.

These included the $10bn bailout out of Aldar, the troubled real estate company that needed as much government support as Dubai’s developer Nakheel, whose debts brought that emirate to its knees in late 2009.

Other Mubadala-linked vehicles, such as district cooling company Tabreed, also needed radical restructuring and state support, raising question marks over Mubadala’s judgment.

Critics have also murmured their disapproval at the expense with which Mubadala has launched an array of domestic initiatives aiming to diversify Abu Dhabi’s oil-dependent economy, from high-tech manufacturing to healthcare, education and the ambitious renewable energy project Masdar.

Amid power shifts in the capital, new board members joined the fund, broadening governance oversight – but predictions of radical changes of direction seem to have proved unfounded.

The Batista deal primarily seems focused on delivering financial returns for Abu Dhabi as the emirate finally extends its portfolio into the fast-growing Brazilian market.

Social returns for the emirate are planned to come over the longer term in the form of “technology transfer”  -  an often-cited investment quid pro quo that rarely delivers what is promised.

Only time will tell if Mubadala’s Latin adventure will break with precedent and actually bring a new thrust to the domestic economy of Abu Dhabi.

But, whatever the long-term ramifications,  the Brazilian deal shows that Mubadala is back in the hunt, and looking further afield than ever.

Related reading:
Abu Dhabi fund to buy into Brazil’s EBX, FT
Eike Batista: king of local content, beyondbrics
Abu Dhabi’s Aldar receives further bail-out
, FT
Projects boost Abu Dhabi property shares
, FT