Out of the blue

by Anil Bhoyrul, Tom Arnold and Soren Billing on Sunday, 07 September 2008

Abu Dhabi stepped out of the shadow of Dubai with the surprise purchase of Manchester City and more deals are likely to follow as the emirate pumps record oil revenues into high-profile acquisitions around the world.

It doesn't have the world's tallest tower or biggest shopping mall, but it does pump more than 2.6m barrels of oil which will generate more than $100bn in surplus petrodollars this year alone.

Now Abu Dhabi is moving out of the shadow of Dubai with its purchase of Manchester City Football Club. It is the latest high-profile trophy acquisition in a long line of deals that have seen the rapidly emerging emirate establish a $1bn movie-making partnership with Hollywood, acquire New York's iconic Chrysler Building while spending billions of dollars taking stakes in Citibank, Ferrari and buyout firm Carlyle Group.

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At first glance the decision to invest in Manchester City, a middle-ranking Premier League club without a trophy in 32 years, may seem a strange choice.

"A very important aspect is that Abu Dhabi is flush with equity and has to invest abroad and some of the sexy places for rich people to invest are the media and the sports sector and especially in the Premier League," says Fadi Al Said, head of equities at ING Investment Management , which expects to raise $1bn in funds in the next year.

"Raising the profile of Abu Dhabi is a goal in itself. Doing this deal in the highly competitive Premier League ensures everyone is talking about it. They have created the buzz they wanted."

If Manchester City has spent a long time in the shadow of its more illustrious rival Manchester United, Abu Dhabi has also been eclipsed by Dubai in the eyes of the international media, obsessed with palm tree-shaped island, indoor ski slopes and designer shopping malls. That is changing fast as the UAE capital builds up an international portfolio of holdings across every type of industry and raises its international profile through deals such as this one.

The acquisition of Manchester City FC from former Thai prime minister Thaksin Shinawatra, was the emirate's highest-profile deal to date.

Having taken control of the club through Abu Dhabi United Group for Development, a special purpose vehicle established by Abu Dhabi's ruling family, the new owners wasted no time in demonstrating they meant business, with the purchase of Brazilian playmaker Robinho from Real Madrid for $61.6m.

Dr Sulaiman Al Fahim, the Abu Dhabi-based real estate tycoon who helped broker the deal, insisted the club was not merely another trophy acquisition but would benefit Abu Dhabi by reinforcing its position as a capital of both sports and economics.

"They are looking at this as an investment, however one that will create a lot of good PR as well," says ING's Al Said.

In 2007, the UAE pumped 2.6 million barrels of oil per day at an average price of $68 per barrel, generating $84.4bn in exports of oil and related products. An estimated 90 percent to 95 percent of those exports come from Abu Dhabi.

"Abu Dhabi is the energy centre of the UAE," says Giyas Gökkent, chief economist at the National Bank of Abu Dhabi. "Dubai has always been the commercial centre, so Abu Dhabi maybe did not have as much of a sense of urgency as Dubai in terms of diversification and in terms of being more outward-looking."

City fans can expect a glut of big-name players to be snapped up with ADUG thought to be making available an eye-watering transfer fund of $450m for the next two seasons as it strives to turn City into the biggest club in the Premier League.

While fans may see it as a colossal sum, it represents little more than petty cash for the emirate which has benefited from a 46 percent rise in the price of its main export since the beginning of the year.

The acquisition of Manchester City is the culmination of a frenetic buying period for the emirate across international markets.

Mubadala Development - an investment company owned by the ruling Al Nahyan family - formed an $8bn partnership with US engineering giant General Electric in July to invest in a variety of industries in the region, while the Abu Dhabi Investment Council paid $800m for a majority stake in New York's landmark iconic Chrysler Building in July. But in common with Al Fahim, the ruling Al Nahyan family has wide sporting interests that include football, horses and motor racing.

Mubadala bought a 5 percent stake in Ferrari in 2005 and was instrumental in bringing Formula One to Abu Dhabi from next year.

Al Fahim himself has already been involved in several sports sponsorship deals and his firm, Hydra Properties, is building a new football academy in Abu Dhabi with Italian soccer giants Inter Milan.

Hydra Properties signed a deal in May with the Serie A title-holders and Abu Dhabi Sports Council to construct the sole football academy in the Gulf, which Inter say could offer a source of future talent in the region.

Before pressing ahead with the City purchase, Al Fahim confirmed ADUG had considered investing in fellow Premier League clubs Arsenal, Newcastle United and Liverpool.

At first glance the decision to invest in Manchester City, a middle-ranking Premier League club without a trophy in 32 years, may seem a strange choice.

But Al Said believes over the long-term the investment may reap rewards for both the club and Abu Dhabi.

"With Abu Dhabi having deep pockets and the people behind the deal having deep pockets they are willing to spend on this club to turn it around, at least try and do what the Russian billionaire Roman Abramovich did for Chelsea five years ago," he says.

"It's a clever move for them to raise awareness of Abu Dhabi too and I think they have the backbone and the pockets to at least make it, maybe not the best investment, but to make sense in the long-term."

ADUG spied an opportunity to invest with Manchester City, one of the oldest and best known clubs in England, but facing an uncertain future because of legal problems facing their previous owner Thaksin Shinawatra.

"When you acquire a club you look for an easy target," says Al Said. Manchester City was owned by the former prime minister of Thailand and he was under a lot of pressure and he was an easier party to negotiate with for a good deal.

"When you go for one of the best clubs you have to pay a much higher price, there may be a lot of resistance from fans. It's much easier to target a second-tier club and if you look at the ownership structure of the club as it is only one guy."

But as the ink dries on the deal, the focus for the next football club takeover from an Arab investor could return to Dubai.

Dubai International Capital, which manages more than $12bn on behalf of the emirate, may be the next UAE group to announce a deal.

DIC and its Liverpool-supporting CEO Sameer Al Ansari have held a long-standing desire to buy the Premier League side dating back to 2006 when months of negotiations ended in defeat after the private equity firm's rescue package of the failing club was pipped at the last minute by the current owners, Tom Hicks and George Gillett Jnr.

But DIC's hopes of securing a controlling stake in the club were rekindled last season after it emerged the American duo were finding it hard to keep up with the steadily rising costs of the club's new stadium and manager Rafa Benitez's demands for new players.

Despite making a $793m offer for Liverpool, no agreement was ever reached but reports persist that the deal may yet be revived.

The Kuwaiti-born, British-educated Sameer Al Ansari has been a Liverpool supporter for more than 30 years, has the LFC crest on his Blackberry screensaver, takes his sons on an annual pilgrimage to the club's home ground, Anfield, every August and attends most of the side's major matches.

As the largest and most profitable league in world football, with estimated revenues at almost $3.2bn for the 2007-08 season, it is perhaps not surprising that the English Premier league is the popular choice for GCC-based investors over the other big European leagues.

"The EPL is the most exciting and most-watched league in the world," says Greg Sproule, managing director of IMG Middle East, a sports marketing and media company that operates in the region.

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