If everything goes as planned, this will be one of three posts on the International Petroleum Investment Company and Aabar Investments.

I have been silent on Aabar’s investment in Malaysian bank RHB Capital, because well, it’s not spaceships. However, there’s been some recent developments that have made me rethink my silence.

An overview of the investment: Aabar agreed to purchase a 25% stake from the Abu Dhabi Commercial Bank in June of this year. The stake was sold for $1.9 billion. The sale was completed last week. 

The thing is Aabar massively overpaid for their stake in RHB. Several Malaysian banks, Maybank and CIMB Group specifically, had plans to takeover the bank. When Aabar overpaid, they backed off. This overpaying appears to have annoyed the Malaysian government as they would love to have “home-grown takeover of RHB.” However, this overpaying certainly helped ADCB as the firm has has not had the best year. ADCB returned to profitablity in 2nd quarter.  While the sale did not help cause ADCB 1st profitable quarter in 16 months. This being said, it will certainly will help ADCB's 3rd quarter, which coincidentally ended the same date as the RHB sale was completed.

It gets slightly better. Even before completing the purchase, Aabar started considering writing down their stake  by 25% because they might have slightly overpaid. Aabar didn't even attempt to renegotiate the sale or even drop out. 

Now it gets even better. IPIC, the parent of Aabar, has taken out a loan to pay for the $1.9 billion purchase. Who’s providing this loan? An Abu Dhabi bank that goes by the name of Abu Dhabi Commercial Bank. Yes, this is the same one that’s just sold their stake to Aabar for $1.9 billion. Remarkable.

ADCB has a high status within Abu Dhabi and outside, not because it’s a well run bank – it’s not – but because it’s a listed bank that has been aggressive and has the reputation of being separate from the government. If ADCB has to turn to the government for capital would be a worrying sign for all companies within the UAE. Any other attempts at state-intervention would cause ADCB to spike down and will probably see other semi-private firms in the country also take a hit.

The same isn’t true of Aabar and IPIC. Since the government fully owns the firms, there are no other shareholders. If Aabar decides to take a hit and write down their stake, there’s really no major consequences for the firm, as apparently it can borrow money at will.  That’s not the case for ADCB, which has 35% of it listed on the Abu Dhabi exchange. IPIC will certainly continue paying their ADCB loan. The government might throw some money their way in the future to make this up.

How is it anything but Abu Dhabi doing a very complicated capital infusion into ADCB?