Mubadala Plans $4.2 Billion-Loan for U.A.E. Smelter

April 2 (Bloomberg) -- Abu Dhabi's Mubadala Development Co. plans to raise as much as $4.2 billion in loans this year to finance construction of the world's biggest aluminum smelter.

Mubadala, an investment company owned by Abu Dhabi's ruling al-Nahyan family, last year said it will spend $6 billion with partner Dubai Aluminium Co. to build a smelter with capacity to produce 1.4 million tons of aluminum a year. The so-called Emirates Aluminium smelter in Abu Dhabi will need its own power plant to produce 2,600 megawatts of electricity, they said.

Persian Gulf states including Saudi Arabia, the U.A.E., Qatar and Oman are investing billions of dollars to build aluminum smelters in an effort to utilize abundant cheap gas and low-cost labor. Power accounts for 29 percent of the cost of producing aluminum, making plants in the U.S. and Europe less profitable than those in the Middle East, a region with two of the world's top three gas reserves.

"We'll leverage about 60 percent to 70 percent of Emirates Aluminium's phase one cost and expect financial close before the end of 2007,"Waleed al-Muhairi, Mubadala's chief operating officer, said in a phone interview today from the United Arab Emirates. The money will be raised through "long-term"conventional and Islamic syndicated loans, he said. Citigroup Inc. is Mubadala's financial adviser.

The U.A.E., which consists of seven sheikdoms including Abu Dhabi and Dubai, is the third largest oil producer in the Organization of Petroleum Exporting Countries and is committed to produce 10 percent of the world's aluminum within a decade.

Record Prices

Aluminum prices will rise to a record $4,000 a metric ton as early as next year on demand from automakers and a scarcity of cheap electricity, according to Russia-based United Company Rusal, the world's biggest producer of the metal. Automakers keen to use lightweight aluminum frames to improve fuel efficiency will spur demand growth, Chief Executive Officer Alexander Bulygin said in a March 27 interview

Mubadala has $1.3 billion of loans outstanding, Bloomberg data show. Last month it signed a contract with Sonatrach, Algeria's state-owned energy company, to build a $5 billion aluminum smelter in the North African country. In February it said it secured $900 million of financing to build a power plant in Algeria, Africa's largest natural gas producer.