The National | 1 May 2011
by Asa Fitch
Mubadala Development is studying billions of dollars of possible investments in Brazil as its strategy shifts towards emerging markets.
Any investments in Brazil's energy, aluminium, aerospace and agriculture sectors would be the first in Latin America for Mubadala, a strategic investment company owned by the Abu Dhabi Government.
Waleed al Muhairi, the company's chief operating officer, travelled with a delegation to Brazil at the weekend to discuss Mubadala's plans in the country.
Mubadala currently has no major investments in the Brics markets: Brazil, Russia, India, China and South Africa. Its strategy in its formative years - the company was founded in 2002 but only recently became Abu Dhabi's primary economic diversification vehicle - has revolved around inking partnerships with established companies in the developed world.
"If we look at growth over time, we expect most of those markets that will yield us the best risk-reward formula will be those emerging markets," Mr al Muhairi said on a recent conference call with investors. "So we're looking at markets such as Brazil, India, China and others."
As economic growth spikes the developing world investors from the Gulf and across the globe have changed tack. Brazil, where the IMF estimates growth was 7.5 per cent last year, has already emerged as a big target for Gulf investors. Aabar Investments, a company owned by the International Petroleum Investment Company of Abu Dhabi, in 2009 invested $328 million in the Brazilian arm of Spain's Banco Santander. The Abu Dhabi Investment Authority, the emirate's main sovereign wealth fund, invested two years ago in Brazilian property. Dubal, an aluminium smelter in Dubai, has also made an investment in Brazilian alumina refining.
Brazilian media reported that Mr al Muhairi met with Fernando Pimentel, the country's minister of Development, Industry and Foreign Trade, and said Mubadala had $13bn available for investments across a variety of sectors. He was expected to return next month to look at agriculture investments. Any such moves would likely be gradual and take a number of years, according to a source close to Mubadala.
Robert McKinnon, the chief investment officer of ASAS Capital in Dubai, said emerging markets abounding with natural resources were enticing for GCC investors looking for a hedge on rising global commodity prices. Brazil has some of the world's biggest stocks of farmland. It also has precious metals in abundance and reserves of bauxite, the source mineral for aluminium. Its labour force, moreover, is generally better-educated than in other major emerging markets, he said.
"Agriculture investment has been a strategy that's been talked about quite a bit over the past few years to ensure the food supply," Mr McKinnon said. "A lot of GCC investors are looking to South America to try to own a stake in that. Brazil's got a huge land bank and cheap land. There are issues with deforestation in Brazil, but for the most part they're friendly to foreign developments."
Mubadala's move into Brazil comes just weeks after it unveiled plans in a bond prospectus to increase spending this year to around Dh60bn. Much of that new spending is to go towards semiconductors as the company takes control of the Advanced Technology Investment Company (ATIC), which bought the chip-making operations of Advanced Micro Devices in 2009. Through its Globalfoundries subsidiary, ATIC is building several new chip manufacturing facilities and plans $5.4bn of capital expenditures this year.
Mubadala last month reported Dh1.1bn of profits for last year, down 76 per cent compared to 2009.
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