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CNBC Transcript: Mubadala CEO, Khaldoon Al Mubarak

Following is the transcript of a CNBC interview with Hadley Gamble and Mubadala CEO, Khaldoon Al Mubarak.

Hadley Gamble: Khaldoon, thank you so much for joining CNBC. I want to kick off by getting a broad overview of what's happening with the fund right now, because you had a rough couple of years. What's happening with Mubadala today?

Khaldoon Al Mubarak: It's a very exciting time for Mubadala. Last year, or this year 2017, was a big year for us. We completed the merger between Mubadala Development Company and IPIC. This is the largest merger ever done in the United Arab Emirates, one of the largest probably in the Middle East and Africa. And it was it was a smooth merger. I think I've been involved in many over the last couple of years, but this particular merger, I think worked out extremely well. We have a new company Mubadala Investment Company. We've had a great year, the merger was smooth, and I'm very excited about the future.

HG: When we talk about what Mubadala's plans are for the future, a lot of emphasis is on technology; $15bn with Masa Son, the question is of course, is past performance really the indicator of future gains?

KM: I think past performance has to be considered among a whole raft of considerations. You know when you are investing with anyone you have to look at their performance, you have to look at their record, you have to look at how they've done in good times and bad times. And, I think Masa and SoftBank, we've been following their performance all the way to the early 80's. And, I think overall, we think from that perspective, there's a very strong track record. But leave that aside, I think that's only one aspect of the consideration to that partnership. Other aspects, and because we consider his expertise in terms of the area which is technology, which is we want to spend a lot of investment capital into that space. And, we needed really to find the right platform, the right partner with the right track record, the right partner with the right values - values that we share, and the right other investors within the group that I think match our objectives. I think we found that through the Softbank Vision Fund. We have a great relationship with Masa and with SoftBank. We have a great relationship with the other investors, PIF among the others. And, more importantly, we look at the deal flow coming in, the quality of the transactions that have been done prior to the establishment of a fund, which then got into the fund. And then since the fund's inception, we've done, I would say, more than 20 transactions since we've entered into this partnership, all of which I think we're very excited about. A high quality deal for high quality industries we're going into today. As we look at Artificial Intelligence, ride sharing, virtual reality; these are all spaces that we want to have exposure to, and we want to find - e-commerce - we want to find the right platforms to invest in, and I think we've done that through this partnership.

HG: But there are concerns, of course, that valuations are really getting a bit ahead of themselves. How worried are you about that? Is it really the time to invest in tech?

KM: I think, you know, when you are an investor like ourselves, which takes a long term horizon. You know, the investment cycle is the investment cycle, you're going to have ups, you're going to have downs - but we are a long term investor. We are a sovereign fund that looks at a 10 year, 15, 20 year return. And from that perspective, it's about the quality of the asset itself. This is what we focus on. We like to get it at the right valuation. Ideally, we always want to invest in the right time of the cycle. But, we are an investment institution. We have to continuously invest, and we have to continuously find the right entry points, at valuations that are acceptable. You will always look at finding the cheapest valuation, but as you know that's not always what you will find. The key is to find the right assets and at a risk acceptable valuation, that you take an investment decision.

HG: And so speaking of something specific, Uber, for example. Are you worried at all that your funds are going to be used just to recapitalize that company?

KM: No I'm not, because I think the way we operate, and the way this fund is operating and the management team involved, I think the objectives are clear. We've seen, we've interacted with the fund managers since day one, there is a very clear discipline within that, and every transaction goes through a lot of scrutiny. So I'm not concerned from that aspect. I think at the end of the day wherever the transaction ends up, if it ends up happening; I'm sure will happen on the right basis.

HG: Do you think that the management structure that is in place now at Uber, is the right one to deal with those growth issues?

KM: Well, I think I'm not in a position to comment specifically on the Uber management, because I've not interacted with them, nor am I involved in that particular transaction. But, I can say for instance, our investment in that space, through our investment in Didi, has been extremely exciting. I am a big fan of Didi - I think it's a great company. Jean, the CEO, has done a phenomenal job. And that space is a space that we think has a lot of growth in the future. So, it's a space that we've obviously allocated some capital in; we've invested a lot in. And I think we're very bullish about in the future. So it's a space - I'll comment through the space that we've invested in which is through Didi - is exciting.

HG: So what other opportunities do you see in China specifically?

KM: So China, I mean we're investing in China through multiple different, I would say, avenues; one of which is through the SoftBank Vision Fund and the other avenue is through our partnership with the CDB - China Development Bank, where we have a joint fund dedicated to invest in the Chinese market. That fund has been operational. We've deployed over $700 million already through that fund, in good investments. We like to invest in China with good partners, because again, we're taking a long term view on China. We believe China is an economy that's going to continue to continuously grow at attractive growth rates, and that the opportunities lie within that economy within the sectors that we like, as long as we find the right partners.

We like, as you've seen in everything we own, mostly everything we do, we like to invest with partners.

HG: Following onto that, you're also obviously invested in Saudi Arabia, the Public Investment Fund and there's a lot of excitement around Neom specifically, $500 billion to build a city that's going to span three different countries, but there are questions of course about execution and really about the pace at which the Vision 2030 is moving. How concerned are you that they'll be able to move as quickly as they'd like to, when it comes to something like building a city in the desert? Because we've seen in the past, something like the King Abdullah Economic City for example, has taken years to progress, and it's still not right where it needs to be. How concerned are you? Is it the pace at which it's moving? Is it the execution?

KM: Well, let me start - I'm not concerned. Why? Because, I think let's start with the vision. Does the vision make sense? I think the vision does make sense. I think if you're sitting in Saudi Arabia and if you look at the last 40 years from one perspective, and you look at the next 40-50 years which is how they are looking at it, it makes perfect sense the avenues that they want to invest. I think opening up the market, there's really I think, an economic reform strategy that is under way in Saudi that I think makes perfect sense. Now the speed of which - for me at the end of the day, they will go at the speed that makes sense for Saudi Arabia. I care more about the trajectory and the direction and the vision. And in these three points, I think they are on the right track. They have the right vision, the trajectory is right, and the direction is right. Now the speed at the end of the day is an execution point. For us, we're taking the long term view and I believe there's going to be tremendous opportunities in Saudi Arabia.

HG: What areas specifically are you hoping to see a return?

KM: So, I'll give an example - I think renewable energy. I think that's a very exciting space in Saudi Arabia. Why? – There's a need. There's clearly a demand for power at an attractive cost. And renewable energy, specifically solar, I think that is a very attractive source of power today. I think Saudi Arabia has a huge demand – incredible, one of the largest I think, demand story's, I would say in the world today, when it comes to power. And solar is becoming so efficient and so attractive from a cost base perspective; you're looking at cost per kilowatt south of two cents a kilowatt. I mean that's tremendous. And I think if you look at the cost base today that you have in Saudi Arabia for the existing utilities, there's no doubt that the opportunity is going to be there for large scale solar power plants across Saudi Arabia. So that's one area, as an example, that I think is going to be extremely attractive for both Saudi Arabia and the investors coming in.

HG: So talking about solar energy. We've also been talking about technology which of course Saudi Arabia is very interested in as well. Talking about disruptive technologies like Blockchain for example - is there an opportunity for something like Blockchain to really change the face of banking as we know it? I mean, are we going to see a situation where your shares in Unicredit could be impacted by the fact that Blockchain is disrupting the banking industry?

KM: It could be. I would say, I still have not formulated a clear view on this. We're still getting educated on this. I mean the area that I would have concern on still is the regulatory side. How is this going to be regulated? Because I think, watching its growth from being let's say double digits early, sorry single digits early double digits, to astronomical growth, will really depend on how fast you can execute and where you're going to be able to execute under a regulatory environment that is acceptable. I think if they're able to crack that, I think it's going to be an incredible story. But to date, I would say I'm still on the fence.

HG: What about bitcoin?

KM: Same thing.

HG: Because Jamie Dimon is calling it a fraud. Do you agree?

KM: No I don't. I wouldn't agree in calling it a fraud. I would say again, time will tell. It could as well be and it could as well not be. I think one has to be open-minded.

HG: Talk to me a little bit about the Abu Dhabi growth story. Where is Abu Dhabi today? We've seen tremendous change over the last several years, particularly with lower oil prices, a lot of attempts to diversify this economy but it's still quite dependent, I think your investments alone in petroleum and petrochemicals, is around 32, I think, .7 %? So, where are the opportunities here for this country to diversify?

KM: Well, I think the last couple of years have been challenging from one perspective, dealing with a lower oil price environment. But, at the same time very opportunistic, because it helped us, I think, move faster down the diversification strategy. But that's not something we started just three years ago. You know, the diversification strategy of Abu Dhabi started over 30 years ago and has been going on.

HG: But it was a lot of stops and starts.

KM: Well, it's been it's been going on for 40 years, you look at you know different pockets. You look at Dubai as an example. Dubai has done a phenomenal job of transforming itself, from 40 years ago highly dependent on oil, to today - pretty much a negligible, I would say, dependence on oil. So that's worked. In Abu Dhabi we've gone from 90% maybe dependence on oil to our GDP, to now less than 35%. So it's been a successful strategy - I think we have to continue down that route. But it doesn't mean that we're going to move away from oil and gas. Oil and gas remains an important part of our economy; the bread and butter of our economy - we won't forget that. We, in Mubadala, as an investor, we invest in the sector. We have, as you said, a significant holding within the energy sector. But it's not just in upstream oil and gas; it's also on the downstream side.

So as an example, we have incredible investments in companies such as Nova Chemicals in Canada, such as Cepsa in Spain, Borealis, OMV, BP etc. And particularly the ones on the downstream side, 2017 has been a very very exciting year. We've had some incredible, I would say, revenue and profitability performances from companies like Nova and Cepsa. So, you know, even within that spectrum of the oil and gas sector, the downstream side has been performing very well and it's part of the diversification strategy that you know sometimes the upstream will face challenges because of the low oil price environment.

But on the flip side, you get better margins on the downstream side on the refining side, so petrochemicals and refining.

HG: And of course we're coming up on this OPEC meeting in just a few days, in Vienna. The conversation of course continues around whether or not that extension will actually happen. There's been a lot of economic diplomacy going on between Saudi Arabia and Russia. Obviously the UAE's a big part of that as well. Are you confident that they're going to extend that agreement?

KM: I think the trend is clear. You've seen what's happened over the last 12 months, how that's worked out so far. And you've seen, I think, we've seen all of us, how the oil prices have reacted over the last particular couple of months. I suspect you'll see more of the same. I think you're seeing the gradual recovery of the oil price, and to be honest you look at the market today, I mean there's a lot of attractive opportunities. It's an attractive investment opportunity, I think, in terms of quality asset here. I'm talking about top quartile in terms of cost base, and location, geography etc. So, there's not been investment in that sector in the last two or three years - very little. I think if you look at the investments and exploration projects all over the world by most of the big majors, it's been depleted. And I think you will see, we will see I believe, in the market in the next coming years the results of that. Because, the industry has not been investing and that will ultimately catch up.

But on the flip side, this opportunity - I think there's good opportunities around the world in that area. We are continuously investing in that sphere, in that space. We also are looking at Shale – Shale is also becoming more and more of an attractive proposition to invest in. So, you know, short answer is - it's an interesting market in the oil and gas side, and we continue to be looking for the right opportunity.

HG: Is there a right price for Abu Dhabi in terms of oil prices?

KM: Is there a right price. I think a sustainable oil price that manages demand and supply, maintaining a good demand trajectory with a good supply availability trajectory, in a balanced way; I think that's the right price for Abu Dhabi.

HG: Is that 55 60?

KM: I won't say what the price is, I think whatever that balance is the right price for Abu Dhabi.

HG: Talk to me a little bit about, from an investor perspective, what would be your message to the international community when they look at what's happening in the region. A lot of political instability surrounding the UAE, a lot of questions about where this region is going and what countries will be involved in the future of the Middle East. What would be the message to international investors who are questioning whether this is the right time to put money into this region?

KM: Investors always have to look at existing valuations and trajectory moving forward and the environment. If you look at the UAE specifically, the UAE's always been in this region. I mean we are where we are, and we've been here today, we've been here for the last, you know, from the beginning of mankind. So this has always been our place here, as Emirati's. Now, uncertainty and instability unfortunately for us, has always been in this region. So, ever since the establishment of the UAE, this region has always been surrounded by instability and challenges. That's the reality. You've seen that in the early 70's, you've seen that in the late 70's, you've seen that in the early 80's, you've seen that in the late 80's. You've seen that in the Gulf Wars in the early 90's and it's been consistent. But, the flip side, if you look at the growth of the UAE, the UAE has grown throughout these periods; through the ups and downs, through the unstable periods and the stable periods. The UAE has continued to grow, and continued to evolve. And we are who we are today. You come here in the midst of what you've just described as an unstable period in this region. But you look around, the UAE continues to grow. We have an exciting economic story that's taking place. Two weeks ago we just opened the Louvre Abu Dhabi, which is a magnificent museum that sends all the right messages to the world, from here.

HG: What are the right messages? Expand on that…

KM: Messages of tolerance. Messages that we are all one community, all of us.

Whatever your religion, whatever your race, whatever region you come in. We are all one. This is one community. And I think, if you go to that museum, you'll get that message loud and clear. You'll see it, I think in a way personified through the curation of that museum. It's something we're very proud of. And it's that type of message that you want to come out continuously from this region. So the UAE continues through this journey. I have, you know I think we all have as Emiratis, high confidence that this journey will continue to be successful. And that, in this region around us, the UAE as a beacon of stability continues to be a good model to follow.

So that's really, I hope that answers you.

HG: When you talk about a beacon of stability in the region, and that's how you're referring to the UAE, there's a lot of conversation internationally about the great destabilizers in this part of the world and of course Iran is mentioned time and time and again. Do you think from an investor and business perspective, Donald Trump, as president of the United States is still the best partner for stability in this region?

KM: I think the United States always plays an important part, and a critical part in the stability of the region. That is, I think an assumption, you have to always base - the region has so many challenges. You mentioned one being Iran. And these challenges always need the international community. And I think the United States plays an important part of this international global community in being a force of stability.

HG: Are there other forces, for example Russia?

KM: I think we live in an interesting world today where many countries, I think, have to play their part. You know the region has been a region that's been, you know, for many years, many countries have been involved in different ways. I believe, today, as we look at stability moving forward - be it Russia, be it China, be it Japan, be it the European Union; the United Kingdom, France etc. All these countries, at the end of the day, all of us have, in my view, I think let's say euphoric world, share a vision of; we want stability and we want economic prosperity and growth. And, as long as we share that, sometimes there'll be disagreements here and there, but at the end of the day, we have to find ways to work together. That's really my perspective on things. And I think within the Middle East, with all the challenges you have in the Middle East, I think you have to always ask - who are the parties that want that vision? And who are the parties that want a disruptive vision? A vision of negativity, a vision of interference, a vision of intolerance. And I think these parties are the parties that I think countries have to work together to neutralize, and not allow to grow their influence. That will result in stability and prosperity and economic growth.

HG: Khaldoon Mubarak, thank you so much for joining CNBC.

KM: Thank you.

ENDS

For more information contact Jonathan Millman, EMEA Communications Executive:

  • Millman@CNBC.com

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