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Wed 18 May 2011 09:16 PM

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Abu Dhabi set to rein in state firms' bond plans

Top officials keen to improve accountability and discipline in state-owned firms, say sources

Abu Dhabi set to rein in state firms' bond plans
A general view of Abu Dhabi. (Getty Images)

Abu Dhabi plans to curtail bond sales by state companies and review the investments they hold to ease through the sale of sovereign bonds and ensure the firms' actions benefit the economy.

The plan to centralise fundraising and crack down on undisciplined issuance in the biggest of the seven UAE has been in the works for at least six months and may take another year to complete, several people familiar with official discussions told Reuters.

Top officials are keen to improve accountability and discipline in state-owned firms, some of which have been described as "mini-fiefdoms".

That means the Department of Finance will become forceful in exercising its authority - until now often bypassed by companies - and control over purse strings. The debt management office (DMO), part of the finance department, will direct bond issuances from Abu Dhabi.

The review will affect Abu Dhabi's high-profile investment vehicles Mubadala, International Petroleum Investment Co (IPIC), Aabar, Tourism Development and Investment Co (TDIC), the sources said.

"(Government officials) feel a vacuum exists between them and the people running the show," said a banking source.

Abu Dhabi has been unable to print another sovereign bond since its $3 billion, five and 10-year April 2009 debut issue because its state-linked firms have accessed markets, draining away limited liquidity, bankers said.

The banking source said the Abu Dhabi bond may be issued later this year or early 2012. It may be followed by United Arab Emirates' first federal sovereign bond.

The part of the review that looks at investments will be reassessing the value of the state-linked firms' holdings, some of which are household names.

Currently, portfolio assets at Mubadala, IPIC and Aabar, which recently bought in as a cornerstone investor in Glencore's IPO, range from stakes in Daimler and Virgin Galactic to General Electric and Spain's Cepsa.

"The basic premise of the process is to have a look at the (global) investments made by these firms and assess if they make sense to the economic development of Abu Dhabi," said a second source involved in the discussions. "In whether they help create jobs, build local expertise. If that doesn't happen, these assets will be eventually sold."

The Abu Dhabi government did not respond to requests for comment. Mubadala declined to comment. Officials at IPIC and Aabar were not immediately available for comment. A TDIC spokeswoman said she was unable to immediately comment.

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AD boy 9 years ago

Finally!!! it's always easy to tap the market for loans but, the ability to achieve the desired returns to pay back the lenders and make profits out of it, is the real challenge. Hope our guys learned the tough lessons from the financial crisis bearing in mind that repeated debt restructuring is not a wise thing to do after all.

Salvador 9 years ago

The facts continue to show no learning from mistakes, so far.
This is just a shy move. It needs a much tougher stand to make sure no mistakes are repeated. The investors are very carefull from entering the market again without clear decisions to deal with persisting issues. Another 2 years to be waisted I guess.