Aabar-Daimler: Abu Dhabi makes a bid for the auto sector? (Registration required)

Aabar, an investment vehicle out of Abu Dhabi plans to take a large 9.1% stake in the German automaker Daimler for $2.1b. The deal involves the investment fund taking up new equity issued by Daimler to help the carmaker meet its capital needs (as Bloomberg notes it had losses of 1.5b euros in Q4 as sales dropped and costs from its operations with Chrysler mounted). This purchase, if approved would make Aabar, Daimler's largest stakeholder surpassing the approximately 6.9% owned by Kuwait. DIC, a Dubai-based investor bought and then sold a stake in Daimler earlier this decade. The deal seems to be in part a joint venture, in which the funds will go towards electric car development and an engineer training center in Abu Dhabi. In this way it partly resembles several deals that Mubadala, a direct investment arm of the Abu Dhabi government, has forged, most notably a deal with GE last year that focused on alternative energy (see here for more on the deal)

I must note to begin with that the Abu Dhabi government is a minority shareholder in Aabar, but this seems to be one of a series of government-linked investors who are seeking out new investments, trying to kick start diversification. I’ve noted in the past that Dubai and Abu Dhabi created a well established set of institutions for domestic and foreign investment, in most cases with a sectoral focus, prioritized for domestic investment. Of these institutions, those of Abu Dhabi are more likely to have funds available as they had higher shares of cash reserves or rather were less leveraged. Though even they may have less cash on hand or at least less new capital to invest. This purchase should thus be viewed in this context.

The deal is significant both for the sum of money but as a test case for acquisitions which have been stymied by valuation uncertainty as well as financing costs as well as for how the German authorities will view a large stake. It is none too easy to connect the dots, but this does seem to underscore the point that investors prioritizing sectors seen as key to domestic economic development may find it easier to raise capital in a time when inflows are scarce. In particular, investments in high-level manufacturing and technological innovation especially if such companies will set up training facilities in Abu Dhabi, seem to be a key part of the partnerships.