Tuesday, November 27, 2007

Sovereign wealth fun

Bush's deficits and Paulson's dollar are creating a fire sale of US assets. Along with China's sovereign wealth fund buying into the world largest, US based, Private Equity group (see prior post) the Middle East Emirate of Abu Dhabi has been busy buying into US technology.

Michael Kanellos blogs,
"Abu Dhabi's Mubdala Development announced it was buying an 8.1 percent stake in chipmaker Advanced Micro Devices, which could cost it roughly between $550 million and $700 million. Mubdala is a separate organization but it's funded by the government. The emirate, part of the United Arab Emirates, is awash with money thanks to escalating oil prices so it needs to put the money somewhere. But there is also more going on in the deal.

Abu Dhabi, like nearby Dubai and Qatar, has been rapidly increasing its investments in the technology industry as a way to diversify its economic base.

The amazing part is the speed with which the emirate is acting. Last year, it set up Masdar, a $250 million clean tech VC fund. It has already invested heavily in HelioVolt, which wants to make copper-indium-gallium-selenide (CIGS) solar cells, as well as Texas LED manufacturer AgiLight.

MIT is getting involved too. America's storied technology university has agreed to help Masdar build an alternative energy graduate school in Abu Dhabi. The school hopes to start admitting students in 2009.

One of the major complaints among business people and even government officials in the Middle East is that many of the college graduates who come from these countries don't have much practical experience.

Will it work? It's hard to say. Dubai, which has created an Internet business park and opened its doors to chip makers, has only made a small dent in high tech. But like China, these countries aren't exactly democracies, so they can conduct long-range planning. And the money is going to continue to flow there for the next several decades."

According to Wikipedia, "Each of Abu Dhabi's 420,000 citizens is worth $17 million."

Fortune magazine has crowned it "The richest city in the world":
"Khaldoon Khalifa al Mubarak is a man in a hurry.

"We move fast," Khaldoon says, his crisp, white headscarf whipping in the wind. "Think about it: How many places in the world can you say, 'I'm going to establish an airline,' and boom, two years later you have 21 planes and 37 destinations? How many places in the world can you say, 'I need 15,000 hotel rooms,' and boom, you have 100 new hotels in the works? How many places can you say, 'I want world-class hospitals, universities, and museums,' and boom, the Sorbonne, Cleveland Clinic, Guggenheim, and Louvre are on the way?"

And where in the world do you turn when you're just about the largest bank in the world and find yourself in dire straits? Why to one of the world's leading and most sophisticated equity investors; yes, Abu Dhabi.

The WSJ reports, "Abu Dhabi Invests $7.5 Billion in Citigroup":
"As a result of the deal, the investment authority known as ADIA will become one of Citigroup's largest shareholders, with a stake of no more than 4.9%. The stake will exceed that of Saudi Prince Alwaleed bin Talal, long known as one of Citigroup's largest shareholders...

"This investment, from one of the world's leading and most sophisticated equity investors, provides further capital to allow Citi to pursue attractive opportunities to grow its business," said Sir Win Bischoff, the bank's acting chief executive officer, in a statement.

The investment underscores the growing role that Middle Eastern investors are taking outside their home turf. Separately yesterday, an investment company owned by Dubai's ruler, Sheikh Mohammed bin Rashid al-Maktoum, bought a stake in Sony Corp. ADIA, which has almost $1 trillion under management, this summer bought a small stake in Apollo Management LP.

ADIA, which is a client of Citigroup, won't have any special ownership rights and no role in Citigroup's management or governance. It also won't have any right to name a member to Citigroup's board.

Separately, Bear Stearns Cos. Inc. and Citic Securities Co., a Chinese investment bank, last month announced a deal in which each will invest about $1 billion in the other."

And in that idiosyncratic way the market seems to react to things, this latest Citigroup bail-out/buy-in sent the Australian Share Price Index futures contract soaring over 75 points over the hour after the WSJ released that story.

Go figure.

Follow up. There's always a party pooper, this time from Bloomberg:

Dubai Migrants Earn $245/Month, Build $2,455/Night Hotel Rooms By Sean Cronin
Jonson Joy gets up at 5 a.m. every day to work 13 hours on a Dubai construction site then comes home to a dormitory next to an overflowing sewage tank. He earns $245 a month and sends half to his wife and two children in India.

Such living conditions, a falling currency and 9 percent inflation have triggered an exodus of laborers from Dubai and strikes by more than 22,000 workers. The protests threaten $430 billion of offices, hotels and homes as the second-largest member of the United Arab Emirates seeks to build a global finance and tourism center with cheap, imported labor.

As many as 286,000 illegal immigrants, or 7 percent of U.A.E. residents, left the country under an amnesty that expired Nov. 3, according to the Labor Ministry. The U.A.E., whose biggest member is Abu Dhabi, had 700,000 migrant construction workers last year, many from India.

With less to show for their labors, many workers say going home may be a better bet than staying in Dubai. India's $900 billion economy expanded an average of 8.6 percent annually in the past four years, making it the second-fastest growing major economy behind China.


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