GE, Abu Dhabi form US$8 bil. Middle East investment fund

State-owned Mubadala also said it plans to become oneo f the 10 biggest investors in Fairfield, Connecticut-based GE, which has lost about a quarter of its value since April 11. That’s when Chief Executive Officer Jeffrey Immelt said 2008 profit would be less than forecast because of frozen credit markets.

GE and Mubadala will each contribute US$4 billion in equity over three years to the fund, aiming to reach US$40 billion in assets. GE, the world’s biggest maker of power-plant turbines and medical imaging machines, will pursue financing for the region’s power plants, hospitals, roads and water treatment. The company will also build a research center in Abu Dhabi’s new Masdar City.

“It’s a very savvy move,” said Peter Sorrentino, who helps manage US$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 81 cents to US$28.50 at 4:15 p.m. in New York Stock Exchange composite trading Tuesday and has declined 30 percent in a 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.

“What it allows us to do is get good geographic and asset spread of risk,” Immelt, 52, said on a call with reporters.

“More importantly it gives us the opportunity to get higher-return opportunities in commercial finance, which is what we’ve talked about over the last nine months.”

The fund may reach its US$40 billion in assets in about a year to 18 months, Immelt and Khaldoon Al Mubarak, Mubadala’s CEO and managing director, said on the call. GE will set up the fund’s origination mechanisms initially, the executives said.

There are “no shortage of opportunities” for the fund to invest and eventually it will look beyond the region, Immelt said. Financial services should still make up about 45 percent of the total earnings at the parent company this year, he said.

The agreement doesn’t change GE’s forecast for this year, Immelt said. In April he triggered the biggest one-day decline in GE shares since 19987 when he said 2008 earnings may rise zero to 5 percent, to US$2.20 to US$2.30 a share, less than his prior forecast of at least US$2.42.

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