Tuesday, July 22, 2008

GE, Abu Dhabi Form $8 Billion Mideast Investment Fund (Update1)

Original Article

uly 22 (Bloomberg) -- General Electric Co., seeking higher returns overseas, and Abu Dhabi's Mubadala Development Co. formed a partnership to invest in emerging markets in the Middle East and Africa, led by an $8 billion commercial finance fund.

GE and state-owned Mubadala will each contribute $4 billion in equity over three years to the fund, aiming to reach $40 billion in assets, the companies said in a statement today. Mubadala said it wants to become one of Fairfield, Connecticut- based GE's top 10 holders by buying stock in the open market.

Chief Executive Officer Jeffrey Immelt, coping with a stock that has declined about 25 percent since he cut his 2008 forecast in April, told investors in May that GE may join with a sovereign wealth fund to invest in finance assets hurt by the global credit crunch. GE, the world's biggest maker of power- plant turbines and medical imaging machines, will also build a research center in Abu Dhabi's new Masdar City among other ties.

``It's a very savvy move,'' said Peter Sorrentino, who helps manage $16.7 billion at Cincinnati-based Huntington Asset Management, including 2.9 million GE shares, said in an interview. For GE, working with the state-owned company ``opens doors and definitely elevates their ability to get deals done in an area where there's going to be a lot of capital spending.''

GE rose 19 cents to $27.88 at 9:31 a.m. in New York Stock Exchange composite trading and had declined 32 percent in the past year. The company last year got more than half its sales from outside the U.S. for the first time, part of Immelt's strategy to tap faster-growing regions and industries.

``We can use our unique financial and industrial capabilities to establish profitable relationships across a number of businesses and we welcome them as a long-term shareholder,'' Immelt said in the statement.


Under the partnership announced today, GE will also invest $50 million in Masdar's Clean Tech fund, while Mubadala will invest $200 million in GE Industrial Investment Partners, a new program to provide development money to health-care, energy and transportation industries.

Abu Dhabi, which holds about 8 percent of the world's oil reserves, is investing in other industries as it seeks to diversify its economy. It's targeting aerospace, energy, water and health care as key industries. Mubadala's investments have included Carlyle Group and Ferrari.

Middle East

The Middle East region is one of GE's fastest-growing, providing more than $5 billion of its $172.9 billion in sales last year. That's a 50 percent rise from 2006, driven by water treatment, power generation, oil and gas exploration equipment and jet engines through the GE Infrastructure segment.

The clean energy center, with 100 scientists, will be an extension of GE's four other global research centers and focus on Masdar, which Mubadala aims to be a carbon neutral, zero-waste city in Abu Dhabi. The companies also plan run an executive training center at Masdar.

``Our long-term partnership with GE draws on a joint commitment to, and core expertise in, high-growth businesses like clean energy, project finance and aviation,'' Mubadala Chief Executive Officer and Managing Director Khaldoon Al Mubarak said in the statement.

Mubadala, which is contributing their own debt-capital for the venture, may also benefit from GE's loan origination resources, which rely on the GE's AAA credit rating to borrow at low costs, creating more profit potential.

Credit Rating

Immelt told investors July 11 that GE remains committed to its AAA rating from Moody's Investors Service and Standard & Poor's Corp., the highest available, and that the company doesn't need an outside capital infusion to maintain the rating at its finance units.

The CEO is selling slower-growing units tied to consumers in developed economies. Earlier this month, Immelt agreed to sell GE's consumer-lending operations in Japan for about $5.4 billion, one day after saying he will pursue the spinoff of GE's consumer lighting and electrical switches business in addition to the century-old appliances unit.

Under Immelt, GE has also expanded the number of joint ventures. The company last week said it would extend its jet- engine venture and maker of the world's best-selling engine with Safran SA of France, CFM International, until 2040.

Today's agreement allows for expansion of General Electric's venture with Abu Dhabi Aircraft Technologies for jet-engine service, and of its power-plant turbine service venture to include field-service repair for the oil and gas industry.

Morgan Stanley advised GE on the deal.

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