Aabar posts $594 million loss for Q2

Aabar Investments, the Abu Dhabi Government-backed investor, swung to a loss of Dh2.18 billion (US$594 million) in the second quarter after using derivative financial instruments to soak up risks from its acquisition in the luxury car maker Daimler. The loss caps a period of frenetic investment for the group, which has seen it take stakes over recent months in Daimler and Sir Richard Branson's Virgin Galactic space travel venture, and helped its stock price increase by half since the beginning of the year. Aabar booked provisions of Dh2.2bn for losses from derivative instruments during the period. It had reported a Dh546m profit a year earlier. Aabar's ?1.95bn (Dh10.29bn) purchase in March of a 9.1 per cent stake in Germany's Daimler, the world's second-largest luxury car maker, formed a key part of the company's diversified investment strategy that has seen it expand its global footprint across a range of industries. "They took the losses on hedging the Daimler deal," said Bobby Sarkar, an equity research analyst at Al Mal Capital Research. Aabar had put in place a derivatives strategy to hedge away the risk of a steep fall in Daimler's price during the firm's acquisition of the car maker's shares, said Mr Sarkar. "But they did still record substantial fair-market gains," he said, contending the company's stock was still undervalued. The losses on derivatives sent the shares down as much as 6.7 per cent yesterday, before closing 4 per cent lower at Dh2.63 on the Abu Dhabi Securities Exchange. Aabar said it delayed the release of its second-quarter earnings because of a conversion of accounting principles at Falcon Private Bank, a Swiss private bank that it acquired from American International Group (AIG). The company completed the purchase of Falcon, then known as AIG Private Bank, in April for about $253m, while AIG assumed $55m of the firm's debt. Aabar has been active this year, taking stakes in a variety of ventures to add to its investment portfolio. On August 10, it struck a deal with the Algerian government and five German companies, including Daimler, to manufacture up to 10,000 cars and lorries a year in the North African country. The lorry giant MAN Ferrostaal is also involved in the project, which will see assembly starting next year from a network of three vehicle and engine manufacturing plants. Aabar's parent company, the International Petroleum Investment Company (IPIC), owns 70 per cent of MAN Ferrostaal. "We're optimistic about the Daimler stake," said Mr Sarkar. "They're majority-backed by IPIC. They have access to cheap funds and I think they will keep on making investments." IPIC, which is owned by the Abu Dhabi Government, in turn owns 71 per cent of Aabar after converting Dh6.68bn of bonds it bought from the company. The rest of the shares are publicly listed. Aabar's total assets grew to Dh27.87bn in the second quarter that ended in June, compared with Dh3.38bn at the end of last year. In July, Aabar bought 40 per cent of Daimler's interest in Tesla Motors, a maker of electric sports cars, the same month it paid $280m for a 32 per cent stake in Virgin Galactic. Also in July, the company partnered with Berndorf in Austria to launch an investment vehicle to target technology companies and European property. The month before, Aabar said it would buy 14 plots of land in Abu Dhabi - including some on Reem Island, in Aldar's Al Raha development, at Rawdhat Abu Dhabi and Saraya - for Dh2.7bn. Last October, Mohammed Badawy al Husseiny, then Aabar's chief financial officer, said the company was sitting on $620m in cash, and potentially much more if IPIC exercised rights to convert a large slug of debt into Aabar shares, and was ready to put it to work. The company started in 2005 as an oil exploration and production firm. But the firm sold all its petrochemical assets and expanded its investment mandate since a board of directors shake-up last year. tarnold@thenational.ae afitch@thenational.ae