Tawazun’s Dh2.5bn defence fund in talks with banks to finance companies

Exclusive: Facility was launched as part of efforts to bolster the local defence and security industry

Abu Dhabi, United Arab Emirates, February 21, 2019.  ADEX Day 5.
Abdulla Naser Al Jaabari, Chief officer and head of the Defense & Security Development Fund.
Victor Besa/The National
Section:  NA
Reporter:  Dania Al Saadi

Tawazun Economic Council’s new Dh2.5 billion defence and security fund is talking with local banks to help provide financing to defence companies in the sector as the UAE beefs up efforts to develop a local industry, an official said.

The fund, which has already committed to investing about Dh1bn in local companies and programmes as well as in an international strategic investment, expects to finalise the new funding programme with banks by early next year, Abdulla Al Jaabari, the head of the Defence and Security Development Fund, told The National. The new debt ventures programme is one of three segments of financing schemes the fund is focusing on.

“Under this [new debt ventures] programme, we are now working on two venture debt funding projects that will be used as pilots to finalise the structure of our debt ventures programme,” said Mr Al Jaabari. “We are actually in discussions with different and several banks to cooperate within the framework agreement to roll out the programme with them.  The funding programme will utilise the bank as a platform to provide the necessary funding whilst leveraging on their vast management experience in this domain.”

Tawazun Economic Council, the body tasked with developing a homegrown defence industry, is ramping up efforts to advance the sector as part of Abu Dhabi’s plans to boost the contribution of the non-oil economy to the emirate’s gross domestic product.

The council also runs the Tawazun Economic Programme, formerly known as the UAE Offset Programme, which creates additional economic value from the country’s extensive defence procurement activities.

“If we can get more banks involved and familiar with the opportunities the defence and security industry carries, we can together create a shift in the UAE SMEs in a way that sees them more involved in the production and development of products as opposed to the general trading model that is currently dominating the segment,” said Mr Al Jaabari.

“In parallel, we will continue to provide direct funding that is not linked to any programme.”

The fund, which will invest the money over a four to five year period that started in 2018, is looking to make a return on its investment as well as reinvest the capital.

“Since we have economic and strategic developmental targets, we incentivise investors and private SMEs while targeting to maintain capital and make a small amount of return,” said Mr Al Jaabari.

“Our target is not to give out subsidies but to provide very favourable terms as well as help SMEs that are unable or facing challenges to get funding.”

The fund has three investment segments: ventures and SMEs, strategic technology investments, and innovation and industrial capability.

The programme with banks falls under the ventures and SME investment segment and is geared toward supporting local companies.

Under this segment, the fund will develop 75,000 square metres of land area provided by Tawazun Industrial Park in a project with an investment value of Dh200m. This SME’s leasing programme is in the planning phase and registration is expected to start early next year.

Under the ventures and SME segment, the fund invested into Al Marakeb Boats Manufacturing, a Sharjah-based company specialised in developing and updating systems of unmanned surface boats, in return for a 30 per cent stake. The value of the stake was not disclosed.

“The way we have conducted the deal is the model we would follow in relation to our direct investment mechanism where a UAE private company is developing a technology or a product for specific market needs,” said Mr Al Jaabari. “Our support comes in the form of providing the necessary funding in return for a minority stake or ownership of IP [intellectual property] rights.”

"Our target is not to give out subsidies but to provide very favourable terms as well as help SMEs that are unable or facing challenges to get funding."

The size for funding or investment in ventures ranges between Dh10m to Dh50m, but it is flexible for certain strategic technologies, he added.

Under the strategic technology investments, the fund invested Dh460m in Russian automotive brand Aurus, which specialises in luxury armoured vehicles and is used by Russian President Vladimir Putin. The investment represents 36 per cent of the company’s share capital.

The fund does not have a specific target figure for investments in this segment, which includes both local and international companies.

“The main target behind this segment is to support the UAE government in developing solutions and acquiring technologies they require in the field of defence and security,” said Mr Al Jaabari.

“Our investment (in Aurus) will help grow and develop production capability and production capacity to produce the product and meet future demands. We also have exclusivity for sales in Mena as well as the right to produce the vehicle in the UAE for the Mena region.”

The innovation and industrial capability segment focuses on supporting the R&D capabilities within universities, research institutes and industry in order to promote Emirati human capital.