Aabar Investments, the Abu Dhabi Government investment vehicle, has helped to raise US$3 billion (Dh11.01bn) in funds in partnership with a Malaysian company to invest jointly in projects such as energy and property.
The cash will be used to kick-start 18 billion ringgit (Dh21.74bn) of economic projects, said 1Malaysia Development Bhd (1MDB), a strategic development company owned by the Malaysian government, yesterday.
"This success underlines investor appetite and confidence in the Malaysia-Abu Dhabi partnership as well as in Malaysia as a sustainable growth centre, enjoying peace, stability and good governance," said Mohd Hazem Abd Rahman, the chief executive of 1MDB.
Nobody was available to comment from Aabar.
The cash was raised from private placements through Abu Dhabi Malaysia Investment Company, a 50:50 joint venture firm set up by Aabar and 1MDB.
The initiative is the latest deal to emerge following a high-profile visit to Malaysia by Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, last month. Sheikh Mohammed used the visit to seal a $7bn investment by Abu Dhabi in an oil storage facility in the Asian country.
At the time, Aabar and 1MDB also announced an investment agreement but details of the deal only emerged yesterday.
Abu Dhabi Malaysia's first investment could be 1MDB's Tun Razak Exchange, a planned financial centre in Malaysia's capital, Kuala Lumpur, 1MDB said. The centre is expected to generate returns of 26bn ringgit for Malaysia's economy when completed, plus 40,000 jobs.
Investments would be focused on "strategic and important high-impact projects such as energy and strategic property, which are vital to the long term-economic growth of both countries", 1MDB said.
Aabar is already invested in Malaysia through a 25 per cent stake in RHB Capital.
Reuters reported in February last year that Aabar was looking to sell the stake after it declined in value since it was bought from Abu Dhabi Commercial Bank in 2011.
Aabar has been on a strong acquisition spree in recent years, snapping up stakes in Tesla, the American maker of electric cars, the British aerospace firm Virgin Galactic and taking a $1bn stake in Glencore's initial public offering. It also has a 21 per cent stake in Arabtec, the UAE construction company.
"Aabar Investments have done this type of joint deal before elsewhere," said Victoria Barbary, director of Institutional Investor's Sovereign Wealth Centre. "This deal may be attractive because of the Islamic financing opportunities that Malaysia has through its status as the Islamic finance capital."
Ms Barbary said Aabar's strong credit rating would have helped it to raise funds for the deal.
1MDB's bonds have received an A minus rating from Standard & Poor's, which also assigned an "axAAA" Asean regional scale rating.
Malaysia is a growing Islamic banking centre, and has targeted a 40 per cent share of Islamic domestic financing by 2020. In a bid to further promote the growth, the Malaysian government is also set to release a new legal framework for Islamic finance this year.
Abu Dhabi is seeking to cement its own foothold in the financial sector by developing Sowwah Square, a Dh4bn centre for financial services.
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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.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
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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Biography
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Favourite non-Chinese food: Arabic sweets and Indian puri, small round bread of wheat flour
Favourite Chinese dish: Spicy boiled fish or anything cooked by her mother because of its flavour
Best vacation: Returning home to China
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Enjoys reading: Chinese novels, romantic comedies, reading up on business trends, government policy changes
Favourite book: Chairman Mao Zedong’s poems
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