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

Immelt is selling slower-growing units tied to consumers in developed economies. Earlier this month, he agreed to sell GE’s consumer-lending operations in Japan for about US$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. He’s also selling to divest the company’s U.S. private-label credit card unit.

The arrangement may also give General Electric a partner who creates a relationship with a sovereign power that may lift obstacles to starting business in the region, said William Batcheller, senior vice president at Butler Wick & Co. from Youngstown, Ohio. The firm manages US$85 million including GE shares.

“Think about all the companies that had trouble trying to get businesses going in the Middle East — all the oil companies all the chemical companies that have had a hard time dealing with the in-place government entities,” Batcheller said. “This looks like a pretty good start for that.”

Investments

Kaldoon Al Mubarak declined to give a timeframe for when Mubadala might reach its goal to become a top-10 GE shareholder. GE has about 9.97 billion shares outstanding, and its current largest stakeholder is Barclays Plc through its Barclays Global Investors division with 392.6 million shares, or 3.94 percent, of the total outstanding at the end of March. About 10 percent of GE’s shareholders are from outside the U.S., Immelt said.

“It makes a lot of sense for us to become shareholders in GE,” Al Mubarak said on the call. “We like the company. We think under Jeff’s management it’s an institution that’s done extremely well. We think it’s valued today attractively from our perspective.”

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

Abu Dhabi

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.

The Middle East region is one of GE’s fastest-growing, providing more than US$5 billion of its US$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.

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.

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.

Morgan Stanley advised GE on the deal, while Mubdala was advised by Goldman Sachs and Lehman Brothers Holdings Inc.

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