Page 82 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

66 PART I Background and Context

Nordic exchange OMX in 2008. 24 Partnership with these exchanges
can help the DIFC transfer technology and relationships that support
its own development as a financial hub and also, importantly, build
credibility concerning its standing among leading international cen-
ters. It’s not surprising that, based on similar aspirations and ratio-
nale, Qatar has also hotly pursued investment in exchanges.
Another way in which specialist GIVs operate much like private
institutions is in their use of financial leverage and (at times) complex in-
vestment structures. Analysts estimate, for example, that Dubai
International Capital (DIC) raises about 30 percent of its capital exter-
nally, 25 and that the use of debt financing by Dubai-based investors
has enabled them to take larger stakes but also created substantial
risks. In the financial crisis, such debt financing has proven especially
troublesome. Even Abu Dhabi, with its vast capital reserves, utilizes
financial leverage (in the broad sense of the term) to enhance the
buying power of its specialist GIVs. In 2006, Mubadala established a
$500 million revolving line of credit with a set of leading international
and regional banks, including Citibank, Barclays Capital, and oth-
ers. 26 In November 2008, Mubadala secured a AA credit rating in
order to enable future debt financing. 27 IPIC is the majority share-
holder of an investment vehicle called Aabar Investments, which is
publicly listed and therefore draws on capital from the retail market
in Abu Dhabi. In December 2008, Aabar bought a 9.1 percent stake in
German automaker Daimler AG for the sum of $254 million. Khadem
Al Qubaisi, chairman of Aabar and also managing director of IPIC,
has stated that IPIC intends to grow its portfolio to $20 billion in value
by 2014 through such acquisitions. 28 Leveraged investments allow
GIVs to amplify their returns, but also create repayment requirements
that can be brutal when asset values go down.
Unlike SWFs and similarly conservative investors, specialist
GIVs in the Gulf sometimes engage in joint ventures (JVs) with lead-
ing global players. Beyond providing equity capital (as is done in
straightforward acquisitions), entering JVs requires significant
involvement in overseeing the commercial aspects of the relationship,
and typically participants need to play active roles in the ongoing
entity. In the second half of 2008, Mubadala entered into such a JV-like
arrangement with GE regarding clean technology. Mubadala and GE
agreed to invest $4 billion each (over the course of three years) princi-
pally to develop Abu Dhabi’s “Green City” called Masdar and also
support other renewable energy initiatives. 29 The Qatar Foundation,
through its extensive Education City initiative, has essentially entered