Some companies like to think big and move fast. Aabar Investments PSJC, based in Abu Dhabi in the UAE, shows how it is done. Incorporated in 2005 with a mandate to develop an oil and gas business focusing on exploration and production, Aabar has since transformed itself into a global investment fund with holdings in real estate, automotive, financial services, infrastructure and transportation.
“Was this transformation part of the plan from the company's inception?” asks Mohamed Al-Husseiny, Aabar's Chief Executive Officer. “Not at first. It was an evolution. Eventually, hydrocarbon assets were shed and put to work in a more profitable way.”
Within a month of incorporation the company had launched a successful IPO, raising $245m which it used to go on a shopping spree. Drilling services company, Dalma Energy was acquired first, followed by the purchase of oil and gas exploration and production company, Pearl Energy. That deal was completed in May 2006 and the following year saw several major exploration and production projects established as far afield as Algeria, Indonesia and Thailand. Then in 2008, both subsidiaries were sold, IPIC (International Petroleum Investment Company, an Abu Dhabi sovereign wealth fund) became a major investor in the business and HE Khadem Al Qubaisi was appointed Chairman. The company has not looked back.
The appointment of Al Qubaisi was an inspired choice for spearheading the transformation. Having started his career working as a senior financial analyst in North American equities with the UAE sovereign wealth fund, Abu Dhabi Investment Authority, Al Qubaisi developed strong international investment skills. Today, he sits on the Boards of several investment organisations in the MENA region, Europe and Asia. In his capacity as Chairman, he has grown the Aabar asset base from $874m in 2008 to roughly $13.525bn today.
“Our Chairman has provided the vision, set the agenda and provided hands-on guidance throughout this growth period,” comments Al-Husseiny. “Without that clarity of focus we could not have grown as quickly and successfully as we have. Given the current global environment, we see several potential deals every day. Without a clear vision, we would tie ourselves in knots. With that guidance, we more often than not find our own deals, because we know best what works for us.”
Key to the company's ability to maintain its focus is a clear set of guidelines, which Al-Husseiny refers to as Aabar's four investment philosophies. These are: #1 – backing new technologies and ground-breaking ideas; #2 – backing “blue-chip” companies at attractive valuations; #3 – building strategic relationships, and #4 – realising inherent value in Abu Dhabi's future. The guidelines have seen the company make significant investments over the past two years in organisations as diverse as UniCredit, Tesla, Daimler and Virgin Galactic (subject to regulatory approvals).
“Our shareholders aren't looking for us to take wildly speculative risks,” Al-Husseiny explains. “Because we are long-term investors, we can look at fundamentals but we also look for growth opportunities. For example, Virgin Galactic employs proven technology that has already been to space, but these are technologies and capabilities that will be relevant for decades to come. That is where the growth comes from. We also see opportunities in today's valuations. The Euro-zone crisis caused a sell-down of many stocks which turned sound businesses into good investments.”
In June of this year the company announced its latest deal – the purchase of a 4.99 percent stake in UniCredit, a rapidly growing pan-European banking institution based in Italy. Aabar's investment makes it UniCredit's second largest shareholder behind Italian investment bank Mediobanca. Noting how the deal sits well within Aabar's guidelines, Al-Husseiny says, “We have known UniCredit for some time. We believe it to be sound, with strong opportunities in Eastern Europe and elsewhere. The valuation spoke to us.”
The team does not expect to just sit back and wait for the money to flow in from its investments, however. The third point of Aabar's investment philosophy is predicated on the belief that they will be able to create value within the portfolio through strong relationships and synergies. Their foray into the automotive sector is a good example.
When Aabar acquired 9.1 percent of Daimler stock in March 2009, Dr Dieter Zetsche, Chairman of the Board of Management of Daimler AG said: “We are delighted to welcome Aabar as a new major shareholder that is supportive of our corporate strategy. We look forward to working together to pursue joint strategic initiatives.”
By July, the two companies started their first joint project with a shared investment in Tesla Motors, Inc. Tesla is the world's sole producer of electric vehicles that are capable of operating over long distances. Daimler is keen to integrate Tesla's lithium-ion battery packs and charging electronics into its electric smart car, and the joint project with Aabar will enable further collaboration on the development of battery systems, electric drive systems and individual vehicle projects.
In November Aabar and Daimler launched their second project with a joint bid to acquire 75.1 percent of Formula One racing team, Brawn GP. “Daimler has been a great investment for us,” says Al-Husseiny. “The share price has more than doubled, but also, we have a strong relationship with management which has allowed us to put our capital to work alongside their expertise and using their relationships in the industry. As a result, we have invested in Tesla and the Mercedes F1 team, and we're looking to make further investments together.”
Sharing the vision
The fourth investment philosophy is about enriching Abu Dhabi's future by bringing in new technologies, jobs and investment opportunities. In 2007, the government of Abu Dhabi launched its new economic vision, citing a non-oil trade deficit of approximately $21 billion in 2006. The plan calls for the continued development of the oil and gas sector in parallel with achieving 7.5 percent annual growth in other sectors to establish a neutral non-oil trade balance by 2030.
To achieve this economic transformation, Abu Dhabi will be focussing on building infrastructure, re-skilling the labour force and strengthening its financial markets. For Aabar, the vision creates many opportunities.
“Being on the ground, we understand and appreciate the vision laid out by HH Sheikh Khalifa bin Zayed Al Nahyan and his government,” says Al-Husseiny. “The investment opportunities this vision represents are extraordinary. We'll play a role in that development and we'll reap the benefits. I challenge you to find another economy in the world with such exciting near term opportunities for growth and profits.”
Already, the company's investments are beginning to create benefits for the Abu Dhabi economy. The investment in Daimler is expected to bring highly skilled job opportunities in the automotive industry to Abu Dhabi, as well as creating industrial synergies with other Abu Dhabi joint ventures and developing new products to be used in automotive manufacturing. Another investment, a 3.3 percent stake in Atlantia, owners of the largest concessionaire on the Italian autostrade network, is creating opportunities for Aabar to get involved in infrastructure projects in Abu Dhabi and the MENA region.
The acquisition of the private banking arm of defunct American financial services giant AIG has enabled Aabar to introduce the benefits and services of private banking to customers in Abu Dhabi. The renamed Falcon Private Bank Ltd. focuses on providing wealth management services to private clients, wealthy families and institutional investors in Switzerland, Asia and the Middle East.
And finally, Aabar's investment in the space travel company, Virgin Galactic, includes plans to develop and launch small space satellites from Abu Dhabi and to develop science and technology capabilities in the Emirate.
Despite its commitment to developing the local economy, Aabar sees itself as a global player. “Today, it's a global economy,” explains Al-Husseiny. “Abu Dhabi, and the region, have been playing important roles for many years. Aabar is merely playing its own part in an existing global relationship, and our role is not just about investing in the West. It's also about opening a door to Western investment in the region, in support of our global vision.”
As an investment company, Aabar also takes the view that creating value takes time. “We're long-term investors,” says Al-Husseiny. “We're not tortured by quarterly earnings management. We expect to be exiting deals and taking profits from time to time, particularly on our property development projects, so net growth may eventually slow, while gross growth keeps ticking along.”
That long-term perspective, combined with visionary leadership, has led Aabar to invest in businesses working at the leading edge of new technologies, before commercial applications are fully proven. Virgin Galactic is one. Started by Sir Richard Branson's Virgin Group, the company plans to provide sub-orbital space flights to the paying public within the next two years. Asked if Chairman Al Qubaisi plans to take a trip on one of the early flights himself, Al-Husseiny laughs. “Just one? You're selling us short!” he says. “Seriously, it isn't just a joyride. The business is also about developing new technologies and furthering scientific experimentation.
“But I'll reserve a seat for you if you are interested!”