Photo of Asma Al Suwaidi and Kofi Aduku, Mubadala Investment Company.
Playing its part in funding Abu Dhabi’s strategic vision, Mubadala Investment Company structured and implemented an innovative supply chain finance that not only ensured project suppliers and contractors were protected but also generated so far some US$60m of value for itself.
Asma Al Suwaidi
Senior Associate – Financial Risk Management
Abu Dhabi, UAE
Mubadala is a pioneering global investor, deploying capital with integrity and ingenuity to accelerate economic growth for the long-term benefit of Abu Dhabi. As Abu Dhabi’s leading strategic investment company, Mubadala is active in 13 sectors and more than 30 countries around the world, creating lasting value for its shareholder, the Government of Abu Dhabi.
Supply chain financing as a value creation catalyst
Mubadala Investment Company approved an equity-funded investment to establish a new cutting-edge locally based platform that forms part of Abu Dhabi’s strategic vision. The nature of the investment and its deployment presented several challenges that the Treasury and Investor Relations team had to overcome.
Firstly, the funding allocated for the project required a significant cash investment upfront and over the next five years. Secondly, due to the nature of the suppliers and contractors involved, there were several additional complications such as foreign exchange and sector specific considerations.
Finally, the deal structure had to be supported by a number of parties including banks, the commercial team, internal and external auditors, legal, as well as IT and finance, adding to the overall complexity of the deal financing.
Working with its banking partner in UAE, the Treasury and Investor Relations team successfully structured and implemented an innovative supply chain finance (SCF) solution that delays the capex equity funding required for the underlying project while ensuring that the suppliers/contractors are only positively impacted by this delay.
This arrangement meant that the original capital allocated for the project could be invested to generate returns that more than compensated for the cost of the SCF. The delay in equity deployment also meant that at some point over the life of the project once it is operational and starts to generate revenues, it will become partially self-funded, thereby requiring less than the expected equity from the parent. Applying this solution has created significant value for Mubadala.
In addition, the complex foreign exchange dynamics of this project required an appropriate risk mitigation strategy which the team established from the outset.
“Winning the Adam Smith Award is extremely rewarding, as it provides validation for all the great work we have done under the new leadership of the treasury team in Mubadala Investment Company.”
Asma Al Suwaidi, Senior Associate – Financial Risk Management, Mubadala Investment Company
The final pillar of the solution is a robust accounting treatment for the project. It was important that the structure, despite its intricacies, was classified as payable in line with the standard accounting classifications of trade financing and SCF. This required close coordination with Mubadala’s internal finance, legal and commercial teams in drafting the contracts.
In taking the lead in driving the structure while collaborating with internal and external parties, treasury has been able to shape and optimise the commercial contracts of the project.
Best practice and innovation
The team took a standard product and found innovative ways of implementing it to fund this project. For instance, the three-year tenor that was achieved with Mubadala’s partner bank is unconventional in the trade finance space where products are typically short term in nature.
The successful structuring of this solution has created a new funding mechanism, which may be utilised for other projects in Mubadala and across the Middle East.
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Treasury becoming a strategic leader in driving value for the organisation.
Forging trusted partnerships with relationship banks.
Delays equity funding required from parent.
Project generated significant value for the company.
A pioneering working capital optimisation/funding mechanism, which presents another way to deploy cash into projects.
Key learning points
Do not take no for an answer, persistence and two-way communications are key when structuring unconventional solutions. In addition, working collaboratively with various stakeholders (including the commercial teams, legal, finance, and banking group) is how treasury becomes a value-adding thought partner. Always think about ways you can add value to the organisation.