General Electric Co. deepened its ties to the Middle East by agreeing to an $8 billion commercial-finance partnership with an investment arm of Abu Dhabi’s government, which also envisions taking a significant stake in the U.S. conglomerate.
GE and the investment arm, Mubadala Development Co., said they will jointly set up a commercial-finance division aimed at Middle East and African markets. Each company will commit $4 billion in equity to the venture, which may then borrow additional money to extend its reach. (Please see related commentary1.)
Mubadala, among the most active government-investment vehicles operated by Persian Gulf states, also said it plans to become one of GE’s “top 10 institutional investors,” buying shares in the open market. Mubadala didn’t disclose how big a stake it would like to build in GE.
At the end of this year’s first quarter, the 10th-biggest holder in GE owned some 101.3 million shares, according to FactSet Research Systems, a stake valued at about $2.9 billion, based on Tuesday’s GE share price. In 4 p.m. New York Stock Exchange composite trading, GE shares rose 81 cents, or 2.9%, to $28.50.
The Mubadala investment might “give you a pretty good floor under the shares,” said Mike McGarr, a portfolio manager at Becker Capital Management, with assets of $2.3 billion. He said working with the Abu Dhabi fund could give GE better visibility into local trends and “an entree” into some deals.
The deal represents an extension of GE’s efforts in the Middle East, where it is benefiting from an infrastructure-building boom financed by rising oil prices. The Fairfield, Conn., conglomerate generated $5.4 billion in revenue last year in the region. That outstripped the $4 billion GE generated in China, for example. Last year, GE sold its plastics division to Saudi Basic Industries Corp. for $11.6 billion.
Mubadala and GE said they will also cooperate in research-and-development activities aimed at clean-energy and water projects, and jointly pursue aviation and oil-and-gas projects. Last year, the companies created a $1 billion fund with Credit Suisse to invest in infrastructure projects.
The GE move is Mubadala’s latest U.S. investment effort. Last year, it paid $1.35 billion for a 7.5% stake in private-equity firm Carlyle Group, and it bought a roughly 8% stake in Advanced Micro Devices Inc. for $622 million. Its AMD holding now is valued at about $216 million.
The GE-Mubadala plans are contingent on reaching a definitive agreement and regulatory approval.
“I really don’t think this has a political angle to it,” GE Chairman and Chief Executive Jeffrey Immelt said. “I think this is all about business.”