Abu Dhabi - Phoenix deal augurs huge investment

Abu Dhabi credit: Saleh Al Tamimi Shutterstock
Abu Dhabi credit: Saleh Al Tamimi Shutterstock

The timing of the deal, as Benjamin Netanyahu is set to become prime minister, is no coincidence.

The acquisition of a 25% stake in insurance company Israel Phoenix Assurance Ltd. (TASE:PHOE1; PHOE5) by the Abu Dhabi state owned ADQ investment fund is a major move in the UAE plan to invest $10 billion in Israel, which was proclaimed in January 2021, according to a senior international source closely involved in the economic relations between the two countries.

Abu Dhabi Development Holding Co. (ADQ) is according to reports in the UAE, the investment institution chose to lead the plan, and the Phoenix deal, if completed, is the first step that will lead to other investments in the energy, fintech, financial, and advanced medical technology sectors. ADQ will target large, leading companies in their fields of activity in the business, non-government sector.

Oil money translates into achieving political influence

In the UAE, as in the other Gulf States, extensive use of the oil and gas revenues, their main source of wealth, has been made for political and diplomatic ends. Every time there is a need to move closer to this or that country, a special investments fund is set up for that country. Funds with huge amounts like $10 billion were established last year with Israel as well as more recently with Turkey and Oman. ADQ is a state-owned fund and investments are conducted according to economic logic and only after comprehensive due diligence and not out of philanthropic motives.

More than two years have passed since the Abraham Accords were signed and besides the enormous increase in the volume of trade between Israel and the UAE, Israeli expectations of significant investments by Emirati entities here have not been fully realized so far, with the exception of the purchase made last year of 22% of the Tamar gas reservoir for just over $1 billion by Mubadalah Petroleum, the energy arm of the UAE sovereign wealth fund.

Speaking recently to "Globes," a senior UAE official was critical of the conduct of Israeli government officials regarding certain ventures and recalled the withdrawal of the Emirati company DP WORLD from the Haifa port privatization tender due to allegations of over-burdensome bureaucracy.

A fund that manages $160 billion

ADQ was founded in 2018 as one of the sovereign wealth funds of Abu Dhabi and it currently has assets worth $160 billion under management (the fifth biggest fund in the UAE and the third biggest fund in Abu Dhabi). The fund focuses on three sectors - energy including renewable energy, pharmaceuticals, and international transport and port operations. The finance and insurance sector is much smaller within the fund but is developing rapidly.

ADQ has partial ownership in Etihad Airways and Wizz Air Abu Dhabi (a joint venture with lost cost carrier Wizz Air). ADQ already has some investments in Israel including in cultured meat company Aleph Farms and the Vola Fund Group. Overall, ADQ has invested nearly $7 billion over the past two years, mainly in the region.

ADQ is led by chairman Sheikh Tahnoon Bin Zayed, brother of the UAE ruler Mohammed Bin Zayed. In other words all investments are closely coordinated with the country's leadership. So the investment by ADQ in Phoenix has great significance and paves the way for additional investments and a growing interest in the UAE in investing in Israeli institutional bodies.

Another important meaning of the person who heads the fund is that it is essentially a political/diplomatic arm as well as economic. This is also the reason why this fund was chosen to manage a significant part of the investments in Israel.

The fund's experts, and people recruited for this purpose, have been conducting doing research into and examining large Israeli companies in recent months, to identify potential investments. According to the senior UAE official, and in line with the Emirati policy so far, the criteria looked for are relative size, a significant share of the relevant market, real growth potential, quality management and also the ability of the shareholders to influence the company. Another important principle for the UAE is opening a connection to in the UAE itself, that is to say, they expect that the acquired company will establish activities in the UAE as well.

A senior Israeli source said that the deal has major diplomatic and political significance and must not be left in the hands of senior ministry officials.

The diplomatic aspect: Netanyahu will be supportive

It is difficult to ignore the timing of the reported deal, just days before the expected swearing in of the new Benjamin Netanyahu government, even if it is clear that the negotiations have been taking place for months. From the UAE point of view, and this is no secret, they are satisfied with the results of Israel's elections, firstly because of the establishment of a stable government, which is necessary for the advancement of relations politically and economically. But also because of the return of Netanyahu, the man who signed the Abraham Accords with them.

In the Gulf, they appreciate Netanyahu's international political capabilities and especially his resolute stand against Iran. Netanyahu, for his part, sees the agreements as the highlight of his tenure, announcing at every opportunity the desire to further promote relations with the Gulf States.

Consequently Netanyahu and his aides will follow very closely the process of examining the transaction by the various regulatory authorities. Let's remember that there is currently no Supervisor of Capital Markets, Insurance and Savings - the regulator who must approve the deal - after Moshe Bareket unexpectedly stepped down earlier this year. So the new government needs to appoint a new regulator.

Published by Globes, Israel business news - en.globes.co.il - on December 14, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Abu Dhabi credit: Saleh Al Tamimi Shutterstock
Abu Dhabi credit: Saleh Al Tamimi Shutterstock
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