Abu Dhabi plans merger of sovereign funds Mubadala, IPIC

Dubai

ABU Dhabi is planning to merge two of its largest sovereign investment funds as the sheikhdom pursues a strategy of consolidation after the slump in oil prices.

The combination of International Petroleum Investment Co (IPIC) and Mubadala Development Company PJSC would pool assets of about US$135 billion and debt of about US$42 billion, according to Bloomberg calculations. UAE Deputy Prime Minister Mansour bin Zayed Al Nahyan and Oil Minister Suhail Al Mazroui will be part of the committee charged with overseeing the deal, according to a statement on state-run WAM news agency on Wednesday.

Abu Dhabi is reining in spending as the decline in oil prices slows economic growth and plans to cut costs by combining two investment funds with common assets in areas such as energy, financial services and healthcare. It's the second major deal to be announced this month from the emirate after National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC - its two biggest lenders - said that they were in talks on a potential combination.

The deal "fits into a wider rationalisation of state-owned entities, streamlining of strategy and cost saving initiatives", said Philippe Dauba-Pantanacce, a senior economist and global political analyst at Standard Chartered plc in London. "The emirate is revising its previous strategy of having various separate entities representing different investment purposes."

Mubadala has an eclectic range of assets at home and abroad. It's the largest single investor in US semiconductor company Advanced Micro Devices, Inc with an 18 per cent stake and owns 30 per cent of Aldar Properties PJSC, Abu Dhabi's biggest developer. It also has a 7.1 per cent holding in First Gulf Bank. IPIC's investments are focused on energy and petrochemical companies including Spain's Cepsa SA and Vienna- based Borealis AG.

Abu Dhabi, which sits on 6 per cent of global oil reserves, is planning spending cuts equal to 17 per cent of economic output this year, according to a government bond prospectus. Economic growth will slow to 1.5 per cent this year, from 4.3 per cent in 2015, according to the International Monetary Fund.

The emirate may be merging the two funds after a previous plan to sell assets stalled. Mubadala was considering a sale of Swiss aircraft-maintenance business SR Technics and an initial public offering of Yahsat Satellite, people familiar with the matter said in February. BLOOMBERG