Abu Dhabi government to merge state investment funds Mubadala and IPIC

Abu Dhabi plans to merge state investment funds Mubadala Development Company and International Petroleum Investment Company, the emirate's state news agency said on Wednesday.

The combined fund would have assets worth around $135 billion, according to Reuters calculations based on both funds' latest financial statements.

"The merger of the two companies augments the investment advantages and economic revenue for Abu Dhabi, and creates a body capable of achieving the highest level of integration and growth in multiple sectors, including energy, technology and space industry," the agency said.

A committee headed by Deputy Prime Minister Sheikh Mansour bin Zayed al-Nahayan will oversee the merger, the statement added, without giving a timeframe for when the combination would be completed.

The merger comes as Gulf sovereign investment funds are adjusting to lower oil prices. Mubadala did not receive any new cash from the government in 2015 for the first time in at least eight years.

IPIC is also in the midst of a row with 1MDB. The Abu Dhabi fund has asked a London court to arbitrate in a dispute with the Malaysian state fund over a debt restructuring in which IPIC is claiming about $6.5 billion.

Mubadala's role had been to make investments which would help advance Abu Dhabi and its economy. As well as controlling companies such as clean energy firm Masdar and satellite operator Yahsat, it has stakes in General Electric and Carlyle Group.

IPIC was tasked with making investments in the energy sector. It owns Spanish energy firm Cepsa, Canadian petrochemical maker NOVA Chemicals and has a majority stake in Austrian plastics company Borealis.

A spokesman for IPIC declined to give further comment. A spokesman for Mubadala did not immediately respond to a request for details. 

A source to the discussions on the deal said the merger should be completed by the end of 2017.

The committee overseeing the process will study the deal for the next six to 12 months. The deal is being approached as a merger of equals, the source said, declining to be identified because of the sensitivity of the subject.

The combined entity will have a greater ability to borrow money on international markets and have a more balanced debt-to-equity ratio, the source added.

The announcement comes a week after National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB) confirmed that they were talks over a possible merger that would create one of the largest banks in the Middle East and Africa.

Both banks have close links to the Abu Dhabi government, which has been cutting costs and restructuring its assets to increase efficiency as low oil prices slash its revenues.

NBAD is 70 percent owned by the Abu Dhabi Investment Council, and FGB is controlled by members of the emirate's royal family.

One senior banker said the merger to the banks could lead to cost savings of 28 percent.