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DUBAI/FRANKFURT: Aabar’s disposal of its stake in Daimler early this month was triggered by a failed derivatives deal underpinning the Abu Dhabi investment firm’s purchase of the shares, sources familiar with the matter said.
Last Thursday, the German carmaker said Aabar sold its 3.07 percent stake on October 5, when it had a market value of about ¤1.25bn ($1.6bn). Aabar did not reveal the buyer nor the price at which the stake was sold.
However, four sources familiar with the matter said that rather than selling the stake, Aabar had relinquished it to banks including Deutsche Bank and Goldman Sachs after failing to finance the derivatives deals.
“The exit was not an outright stake sale that saw Aabar cash away its shareholding. The equity derivatives attached to the financing led to the stake being diluted,” one banking industry source said.
The story of Aabar’s Daimler stake underlines how some Middle Eastern investment firms entered derivative deals to finance acquisitions during the region’s asset market boom several years ago, only to find the transactions mostly benefited the investment banks involved.
It also showed how high-profile equity investments by Gulf Arab states can, in effect, become shorter-term financial plays even if they were intended as strategic, long-term investments.
That could be a worrying prospect for Western companies looking to raise long-term financing in the Gulf.
Aabar and its parent, state-owned International Petroleum Investment Co, were not available to comment.
Deutsche Bank and Goldman and Deutsche declined to comment.
A Daimler spokesman said the company did not comment on the investment decisions of shareholders.
The sources asked not to be named because of the commercial sensitivity of the matter and the risk of losing future business in wealthy Abu Dhabi.
Aabar, also an investor in major corporations such as commodities group Glencore and Italian bank UniCredit, bought 96.4 million Daimler shares, or nine percent of the company, at ¤20.27 per share in March 2009.
It entered derivative transactions, mainly collar trades and put options, to finance the acquisition. The derivatives were sold by Goldman Sachs, the sources said.
A collar trade is an options strategy that limits the loss from a fall in an asset’s price, while letting buyers assume more debt to finance a deal.
The acquirer buys an out-of-the-money put option for the shares while simultaneously writing an out-of-the-money call option. Banks acting as counterparties retain possession of the shares while the acquirer becomes the beneficial owner.
Banks can ask for margin payments on the collar from time to time, depending on the volatility of the share price in the market. If the margin is not paid, banks have the right to sell the shares to meet their costs.