On November 16, the chip maker Advanced Micro Devices (AMD) announced that Abu Dhabi’s Mubadala Development Company has acquired an 8.1% equity stake in the California-based firm. The $622 million investment provides a major cash boost for the struggling US company.
Commentators on the deal have noted that government review of the matter is possible, as some see security risks in a foreign company owning a meaningful stake in a high-tech US company. Some assert that Mubadala – despite having less than 10% of AMD and not having a seat on the board of directors – could somehow compromise our national security. What happens in the weeks ahead will be closely watched by sovereign wealth funds and other international investors with portfolios in the US.
Observers would, however, be well-served to bear in mind the following key facts:
- Gulf capital is nothing new in US markets
Gulf economies, and Gulf-based sovereign funds, have been investing in the US and other OECD economies for decades. Gulf economies generated a whopping $120 billion budget surplus in 2006, and much surplus capital is channeled to global investments. The Abu Dhabi Investment Authority (ADIA) is one of the world’s most important institutional investors; Morgan Stanley estimates its assets to be $875 billion and growing. Much of these assets is held in the form of US treasury bills. Were ADIA and other Gulf investment funds to sell their holdings in US treasury bills, our domestic interest rates would face a real impact.
2. Minority investments represent diversification of Gulf investors’ portfolios
The high-profile stakes taken by Gulf investors in US and other global companies represent a diversification strategy within their portfolios. Gulf institutions have long held fixed income securities in developed markets – now, there is increased appetite for equity stakes as well. Gulf investors hold meaningful minority stakes in such prominent firms as Citigroup, Apple, News Corp., Daimler Benz, and Ferrari.
Such minority stakes are financial investments seeking diversification and return. Majority buyouts like the purchase of GE Plastics by the Saudi industrial firm SABIC are strategic in nature, seeking to enhance the competitive positioning and capabilities of the purchaser.
3. Gulf investors have choices, especially towards the East
Gulf investors have increasingly found attractive investment opportunities in China, India, and other Asian economies. When the Industrial and Commercial Bank of China went public, the biggest single investor was the Kuwait Investment Authority. The Dubai Investment Group has taken a 40% stake in Malaysia’s Bank Islam Group. The less welcoming western markets become, the more Gulf investors will look towards the east.
Chapter 9 (“Capable Capital: The GCC as a Source of Capital”) of Dubai & Co. discusses these topics and more, including a more comprehensive discussion of Gulf investments in the OECD world.
Observers should not be surprised that Gulf investors – already major holders of US fixed income and other debt instruments – are also interested in equity investment opportunities. They should also not be surprised if Gulf investors turn elsewhere if given reason to believe their capital is unwelcome here. Capital markets are best served is to when deals are evaluated based on their merits – most critically, the intent and influence of the buyer – rather than political factors like the investor’s country of origin.
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