Mubadala Investment Company will sell a portion of almost half of its stake in Tabreed, the Abu Dhabi-based district cooling company, to France’s Engie for Dh2.85 billion as the Dubai-listed district cooling company explores new markets, the companies announced on Monday.
The Abu Dhabi-based investment firm said that it agreed to sell a 40 per cent stake in Tabreed, known as the National Central Cooling Company, after turning a profit from its total investment over the past decade. Mubadala will gain about Dh1bn on top of maintaining its single largest shareholder status in Tabreed, with a 42 per cent holding. Engie will be the second-largest shareholder.
Tabreed shares surged 14.6 per cent to Dh2.12 following the news.
The deal, subject to UAE regulatory approval, was made as Mubadala looks to decrease its share after recouping and adding on to its original investment in Tabreed that goes back nearly a decade. By 2009, the company had invested about Dh3.6bn which brought its stake up to 82 per cent.
The company was able to grab more than half of that total back through a combination of dividends on bonds, coupons and share buy-backs.
“Mubadala has been and will continue to be a significant, long-standing shareholder in Tabreed,” said Homaid Al Shemmari, Mubadala’s deputy group chief executive.
The cooling company has been providing technology for nearly 20 years, carrying out projects in Abu Dhabi’s Yas Island and Sheikh Zayed Grand Mosque and in Dubai, on the Metro and Dubai Parks and Resorts as well as in Mecca at the Jabal Omar project. Tabreed supplies chilled water, which is used for air conditioning or converts traditional individual cooling systems to a centralised system.
The deal with Mubadala, expected to be finalised in the third quarter, will add to Engie’s portfolio 71 plants across five GCC countries. Over the past year, Tabreed increased its capacity by over 8 per cent with a further 6 per cent to be added over two years
For France’s electricity utility, the district cooler represents a greater opportunity to expand in emerging markets of Egypt, India and Turkey. Through this deal Tabreed will become one of Engie’s main regional development platforms, the company said in a statement.
Engie operates more than 250 heating and cooling networks spanning 13 countries, and this is just one of the many stops for the firm as it sets its sights on regional expansion.
Sebastien Arbola, regional chief executive of Engie, said that the company had taken on many projects in the region to become a lead independent water power producer. “Engie is supporting the development of a low-carbon power and water production as well as helping the growth of smart and sustainable cities,” he said. “District cooling networks will be at the centre of this sustainable model.”
The district cooling company said that it expected its capital expenditure deployment to be “largely in line with 2016”.
As far as future investments, a company spokeswoman said that the board regularly reviews its strategy, and has so far decided to retain a focus on the GCC given the volume of opportunities. “With that said, management continues to explore other markets and now with Engie on board as a new shareholder, this further reiterates Tabreed’s growth strategy to look into new opportunities,” she said.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
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Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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