Is Aabar Going Long?

Ashby Monk

Aabar Investments has been a rising star within Abu Dhabi’s growing stable of government investment vehicles. Launched in 2005 under the name Aabar Petroleum, it has quickly become an important investment arm of the government. Indeed, Aabar has $10 billion under management and has made some remarkably high-profile investments, including 2 billion Euros for over 9 percent of Daimler. While Aabar is publicly traded, the International Petroleum Investment Company (IPIC) – yet another Abu Dhabi SWF – holds 71% of the company’s shares.

While I had pegged Aabar as similar in trajectory to Mubadala or Bahrain’s Mumtalakat – in that it was raising capital from the market and quite transparent – Chief Executive Mohamed Badawy al-Husseiny just announced that the company will be meeting on Thursday to discuss whether or not it should convert to a private joint stock company and cancel its stock listing on the Abu Dhabi Securities Exchange.

Why would Aabar take this unprecended step? To my knowledge, this type of conversion has never happened on the ADSE. To be clear, Aabar has not given any indication as to why it is considering this step, but that doesn’t stop us from making some guesses.

First, Aabar may be going private because it no longer needs the market for capital. After all, it has the backing of IPIC. Second, and perhaps more pressing, Aabar’s investment objectives — under pressure from IPIC — may be moving towards long-term, strategic plays, which would go against the public shareholders’ interest in dividends. According to one analyst:

“…going private made sense for Aabar because of the difference in interests between IPIC, which wants the company to use its cash to expand, and minority shareholders, who want Aabar to return some of its profits as dividends…Aabar has some longer term strategic goals that just don’t go well with a company that reports on a quarterly basis.”

While I’m never a fan of limiting transparency and disclosure — because I sincerely think there is a business case for transparency — I get it. Having a single, sovereign shareholder allows the fund to take an intergenerational time horizon on its investments.  It’ll be interesting to see what happens.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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