The emirate, home to 95 percent of the United Arab Emirates' (UAE) oil reserves, had embarked on building trophy buildings and mega infrastructure projects, mirroring its flashy neighbor Dubai albeit at a steadier pace.
However, the capital city has had to retrench amid a property slowdown. And the review of nearly 40 government-related entities (GREs) and departments, by Sheikh Hazza bin Zayed al-Nahayan, brother of the Abu Dhabi ruler and UAE president, has led to a red pen being taken to major projects, funds frozen and several top-level management shake-ups.
The priority for Abu Dhabi is to reduce debt owed by government-linked firms, which carry an implicit Abu Dhabi guarantee, and ensure a return on billions in acquisitive spending.
“You are going to see a lot of deleveraging in Abu Dhabi over the next year, some asset sales, a lot of investments that will be marked-to-market,” said a Gulf-based banker with an international firm who declined to be identified due to the sensitivity of the matter.
“As part of the review, they (Abu Dhabi) want the GREs to be self-sustaining,” the banker said at the Reuters Middle East Investment Summit.
Bankers hoping that the emirate’s hefty war chest from oil revenues will translate into lucrative opportunities may be disappointed.
“There are some mandates out there which have been delayed much further or we know may well never come into an execution stage,” a senior Dubai-based banker.
“It’s difficult when one of the key regions in the Gulf slows down. But the important thing for a bank is to hang in while the tough decisions are being made, so that you are called in when things are back on track.”
Abu Dhabi has also pulled out of some investments that were considered unattractive.
Aabar Investments, a top shareholder in Italian bank Unicredit SpA and Glencore International Plc among others, has been selling some of its company shareholdings.
The firm, a unit of state-owned International Petroleum Investment Co, disposed of its stake in Daimler AG in October and exited its 40 percent stake in the Mercedes Formula One motor racing team this month.
“No matter how rich you are, it’s a good practice to keep an account of where the money is going and if it’s getting deployed in the right manner,” said the Dubai banker.
The extent of slowing deal activity is evident from the fact that dozens of banks pitched for advisory roles in a state-backed merger of Aldar Properties Plc and Sorouh Real Estate Co Plc, two state-owned property developers.
The emirate’s effort to orchestrate a merger between Aldar and Sorouh is an attempt to consolidate the property market and assert more order on the building boom. Yet oversupply in the property market still weighs on Abu Dhabi's growth path.
Despite faring better than neighboring Dubai, where prices suffered a spectacular two-thirds collapse after 2008, home prices in Abu Dhabi have been sliding consistently and are expected to drop another 5 percent in 2012 as more supply arrives, a Reuters poll showed in May.
Construction companies, consultancy and architectural firms working on billion of dollars worth of construction projects have complained of slow and irregular payments from some government-linked entities, leading to financial difficulties.