24 jul 08 | domain-b.com

GE focuses on Middle East with $8-billion carbon-neutral city

In a clear sign of the slowing US economy and the growing importance of oil money in today's world, century-old American conglomerate General Electric (GE) has announced a $8-billion joint venture in the Middle East at the same time it is cutting down its operations at home and in other developed countries.

On Tuesday, 22 July, GE signed an $8-billion joint venture with the Abu Dhabi state investment agency Mubadala Development Co that would lead to the Arab firm becoming one of the largest investors in GE.

The initial focus of the venture would be on providing commercial finance in the Middle East and Africa. The two companies also plan to work together in the clean energy and water, aviation, and oil and gas sectors, they said.

Under the deal, each party will invest $4 billion over three years. That $8 billion will then be leveraged up to five times with debt, which means that as much as $40 billion could be invested.

Over the next 18 months the companies plan to invest the amount in commercial and infrastructure projects in the region, GE's fastest-growing market. The companies said Mubadala "plans over time" to become one of GE's 10 largest shareholders by acquiring shares in the open market.

That would mean buying, at the very least, nearly $3 billion of GE shares in the open market. (GE's current tenth-largest institutional shareholder, Wellington Management Co, owns 101.3 million shares worth about $2.96 billion).

"It makes a lot of sense for us to become shareholders in GE," said Mubadala CEO Khaldoon Al Mubarak. "We like the company. We think that under Jeff's management this is an institution that has done extremely well."

Al Mubarak said Mubadala has no stake in GE at this time, and he declined to specify a timeframe for when his company would become a major GE shareholder.

The companies also aim to establish a clean energy technology center in Masdar City, a new city in Abu Dhabi that aims to be carbon neutral. GE plans to commit up to $50 million for Masdar's second clean-tech fund.

"What it allows us to do is get good geographic and asset spread of risk, but more importantly it allows us to reallocate to higher-return opportunities in commercial finance," said GE CEO Jeffrey Immelt.

Masdar (Arabic for the source) is a planned city in Abu Dhabi, in the United Arab Emirates. Designed by the British architectural firm Foster + Partners, the city will rely entirely on solar energy and other renewable energy sources, with a sustainable, zero-carbon, zero-waste ecology. The city is being constructed 17 kilometres east-south-east of the city of Abu Dhabi, beside Abu Dhabi International Airport.

The project is headed by the Abu Dhabi Future Energy Company (ADFEC). Initiated in 2006, the project is projected to cost $22 billion and take some eight years to build, with the first phase scheduled to be complete and habitable in 2009.

The city will cover 6sq kilometres on a site 6.4 square kilometres in size and will be home to 50,000 people and 1,500 businesses, primarily commercial and manufacturing facilities specializing in environmentally-friendly products, and an expected 40,000 workers will commute to the city daily.

It will also be the location of a university, the Masdar Institute of Science and Technology (MIST), which will be assisted by the Massachusetts Institute of Technology (MIT).

Automobiles will be banned within the city; travel will be accomplished via public mass transit and personal rapid transit systems, with existing roadways and railways connecting to other locations outside the city.

Masdar City will be the latest of a small number of highly planned, specialized, research and technology-intensive municipalities that incorporate a living environment, similar to Novosibirsk, Russia or Tsukuba Science City, Japan.

Notable partners in the project through its Clean Tech Fund, in addition to GE, include BP, Royal Dutch Shell, Mitsubishi, Rolls-Royce, Total S.A., Mitsui and Fiat. Construction of the first phase of the project is being managed by CH2M HILL and design of the central Masdar headquarters building has been awarded to Adrian Smith + Gordon Gill Architecture.

The Masdar headquarters building is also the first building in history to generate power for its own assembly, using a solar roof pier that will be built first to power the rest of the construction. The building's aggressive approach to sustainability enables it to offer the lowest energy consumption per square meter for its class, one of the world's largest integrated photovoltaic systems and the world's largest solar thermal driven cooling and dehumidification system.

The complex will utilize sustainable materials and feature integrated wind turbines, outdoor air quality monitors. Compared with typical mixed-use buildings of the same size, the headquarters will consume 70 percent less water. In addition to serving as the Masdar Headquarters, the building will accommodate private residences and "early bird" businesses starting up in the city.

The Masdar development will be constructed over seven phases and is due to be completed by 2016. Masdar's headquarters is part of phase one and will be completed by the end of 2010. The $300-million, 1.4-million square foot headquarters will serve as the stunning centerpiece of the super-green, car-free urban development project.

GE has been targeting growth in the Middle East and last year the firm saw revenue from the region increase by 50 per cent on the year before to $5 billion. The group recently reported a 6 per cent fall in second-quarter profits as a result of the US economic slowdown and cooling consumer spending.

Morgan Stanley advised GE on the deal, while Lehman Brothers and Goldman Sachs advised Mubadala.