Abu Dhabi: While no changes are expected in the investment strategy of International Petroleum Investment Company (Ipic) and Mubadala after the merger of the two companies, the combination is likely to work very well for Abu Dhabi’s economy for seeking better and stable returns, analysts said.
“This merger I don’t expect it to signify any particular change in the investment strategy of the businesses. It’s basically to achieve economies of scale, combine the two, reduce some overlaps and reduce some extra costs which might be there,” said Anita Yadav, head of fixed income research at Emirates NBD, speaking to Gulf News.
She said Ipic investment is generally related to downstream projects to ensure end market for Abu Dhabi’s oil whereas the focus for Mubadala is mainly to invest in sectors away from oil in order to reduce economy’s reliance on hydrocarbons.
“Although Ipic and Mubadala have slightly different objectives, the decision makers are generally the same senior officials from the Abu Dhabi government. Yes, the sectors are different but when you are taking an investment decision you have to think about returns, the risks, timings, benefits etc, the process for which is roughly the same for both entities.”
“The combination will probably will work very well. I think even after the merger their focus and strategy is unlikely to change materially.”
Mubadala and Ipic have wide range of investments across the globe including in Europe, Asia and the US.
Mubadala has partnerships with Boeing, Airbus, Total, Global Foundries etc, where as Ipic investments include Austria’s OMV, Pakistan’s Parco, Japan’s Cosmo Oil, Spain’s Cepsa and other companies.
The two companies have combined assets of $130 billion (Dh477 billion) with Ipic and Mubadala having $65 billion each, a source close to the discussions on the merger told Gulf News.
Mubadala was set up in 2002 via an Emiri decree under which it cannot be dissolved before the expiry of its 50-year mandate for diversifying the Abu Dhabi economy. Mubadala also has a mandate to invest in development and social goal oriented projects or sectors.
According to Yadav, general valuation in the global energy sector have declined recently in response to lower oil prices and it make sense for a merged entity to prudently consider even increasing its investments in this sector, particularly in the downstream or refinery projects.
Adrian Nizzola, partner in Simmons & Simmons expected the new entity to do much of the same but better.
“I expect it will leverage off its greater cumulative experience know how and financial strength to seek better and more stable returns, and add greater value to the Abu Dhabi in capital and knowledge base,” he said.
“With the current global market uncertainties, there are investment opportunities, and I expect Abu Dhabi Inc, is tooling up to take better advantage of them. I think the merger is a sign of things to come, and there are likely to be similar restructurings in the region.”
The latest decision comes in less than two weeks after the merger talks of FGB and National Bank of Abu Dhabi.
The two banks confirmed on June 19 that they commenced discussions regarding the possibility of a merger or a combination of the two businesses.