Mubadala reveals shrinking reliance on government funds

The investment company, is becoming less reliant on government funding and diversifying its sources of revenue to lay the foundations for the next stage of growth, it says.

Mubadala Development, the Abu Dhabi Government's strategic investment arm, is becoming less reliant on government funding and diversifying its sources of revenue to lay the foundations for the next stage of growth, the company says. Mubadala yesterday reported profits of Dh8.6 billion (US$2.34bn) for last year in its annual financial statement, and said it received Dh8.75bn in cash contributions from the Government.

While still a large sum, that was about a third of the Dh25.5bn in government funds Mubadala received in 2008, and less than half of what the company had said it expected to receive last year. Those figures, executives said, showed Mubadala had taken strides towards operating more on a commercial footing and diversifying its funding sources. At the same time, executives said they did not foresee the Government ever cutting off funding for Mubadala. The company had asked for a larger allocation from the Government this year, but Mubadala's management declined to reveal how much.

Still, Mubadala offset lower government contributions last year with an increase in borrowing from global investors and banks, shifting its mix of financing away from reliance on its main shareholder. "We had a very successful issuance of bonds, which gave us liquidity so we didn't need government assistance for the second half," said Matthew Hurn, the head of treasury and corporate funding for Mubadala.

Mubadala is an integral part of Abu Dhabi's drive to diversify its economy, build infrastructure and spur the growth of industry. The company, set up by the Government in 2002, has partnerships with, and owns stakes in, a range of local and international firms, including: the computer chip maker Advanced Micro Devices; General Electric, the US conglomerate; and Aldar, the Abu Dhabi-based property developer. Mubadala is also one of Abu Dhabi's largest property owners and developers.

It increased its overall borrowings by Dh16.9bn last year, according to its financial statements. Much of the new debt was financing for Mubadala's biggest companies, including Yahsat, a satellite venture, and Dolphin Energy, a producer of natural gas in Qatar. But a major slice of the new borrowing came through a $1.85bn bond programme launched in the second half of the year and a ?1bn (Dh4.97bn) bank loan, demonstrating a shift to international investors and banks for financing at the corporate level.

This year, Mubadala added to its sources of funding by launching a programme to borrow foreign currencies from institutions not based in the countries where those currencies were issued. "We now have access to investors globally and to various maturities," Mr Hurn said. "In 2010 we are looking to grow the funding mix that way." As Mubadala reduced its reliance on the Government last year, the contribution of its energy companies to revenues also declined. Dolphin Energy, which accounted for most of Mubadala's Dh6.6bn of revenues in 2008, played a smaller role in last year's Dh13.1bn revenues. Dolphin contributed Dh2.8bn to the mix last year.

The diversification of funding and revenue sources represented an important step in the young company's growth, said Waleed al Muhairi, the chief operating officer of Mubadala. "It's about making sure that we're at the right stage of development and that we're able to institutionalise in a manner that delivers on the type of revenue growth and profitability you would expect from a maturing organisation," Mr al Muhairi said. Mubadala's patient approach often means its investments lose money for years before generating profits.

Emirates Aluminium, for example, a company half-owned by Mubadala that began producing metal last December, posted losses of Dh561 million last year, according to its financial statements. Dunia Finance, a consumer finance venture the company helped start in 2008, lost Dh115m last year. But last year's Dh8.6bn in overall profits show that some of Mubadala's long-term investments are beginning to pay off after Dh19.8bn in losses for 2008, Mr al Muhairi said. "I think it illustrates our patient-capital approach," he said.

"We spend a lot of time analysing opportunities. There are a lot of firms that had a huge amount of uncertainty [in 2008]. We did too, but we thought there were a good number of opportunities, and you're seeing some of the fruits of that in our financial results." It was the second annual financial review Mubadala has released. The first was for 2008. The company is releasing them as part of a transparency drive, but also because statements are required by investors in the company's bonds.