International Petroleum Investment Company's (Ipic) earnings fell sharply last year as the value of its investments were hit by market volatility.
The energy investment fund, which is owned by the Abu Dhabi Government, reported a 96.6 per cent drop in net profits to US$44.7 million (Dh164.1m) last year, compared with $1.3 billion during the previous year.
Ipic is a long-term shareholder in its investments, which include Aabar Investments, Nova Chemicals and Spain's Compañía Española de Petróleos (Cepsa) and would realise higher gains over time, said Khadem Al Qubaisi, the company's managing director.
"Results for 2011 in comparison to 2010 were subject to both market and economic volatility, which continues today," said Mr Al Qubaisi.
"The impact of euro-dollar exchange rates on the value of Ipic's euro-denominated assets, in addition to changes of our mark-to-market listed investments, pared the strong performance of our core underlying operations."
Revenues at the company's subsidiaries swelled to $34.3bn, more than double the sales generated during the previous year.
Ipic is the second big government-owned investment firm to report reduced earnings.
Mubadala Development, a strategic investment company owned by the Abu Dhabi Government, said in April losses grew to Dh4.2bn last year, compared with Dh338m a year earlier, which it also attributed to market volatility.
During the year, Ipic paid €4bn to fully acquire Cepsa, increasing its stake from 47 per cent.
The company also sold a 70 per cent shareholding in Ferrostaal, the German engineering firm, which Ipic initially purchased from the lorry maker MAN in 2009.
That deal had valued the entire company at €700m (Dh3.22bn).
However, Ferrostaal soon became mired in bribery accusations that predated the acquisition. In November, Ipic agreed to settle all claims and sold the stake back to MAN for €350m.
Shares in OMV, the Austrian energy company in which Ipic owns a 24.9 per cent stake, fell by 25.2 per cent during the year as operations in Libya were disrupted by the country's revolution and civil war.
Ipic's returns from its associates could weaken further as a result of a slowdown in European economies, said Rachel Ziemba, an analyst of sovereign wealth funds and Gulf economies at Roubini Global Economics.
"We're going to see stagnation at best and recession at worst in the European countries in the near-term," she said. "That's going to hit those operating in those jurisdictions."
Ipic would face difficulty in determining whether current valuations were cheap enough to justify further investments, Ms Ziemba added.
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