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Make hay while the sun shines. It is precisely what Qatar ? relatively a minnow in the world of mergers and acquisitions (M&A;) -- is doing by its rapid strides in the global arena through wealth fund, state-owned entities and private sector. |
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| Make hay while the sun shines. It is precisely what Qatar - relatively a minnow in the world of mergers and acquisitions (M&A;) -- is doing by its rapid strides in the global arena through wealth fund, state-owned entities and private sector.
Lost out on a bid for UK's Thames Water in 2006, Qatar and its Inc have since then stepped up efforts to make big-ticket overseas investments ranging from retail chain, banking, insurance, real estate, minerals, hospitality, energy and to even aviation. |
This is apparently to ensure that the country - whose population is expanding rapidly mainly on migrant labour force - did not meet with the same fate as in the early 1990s when the Gulf economies groped in the dark when oil prices plunged.
Making it clear to the world that it is serious and meant long-term business, Prime Minister HE Sheikh Hamad bin Jassim bin Jabor Al Thani has emphasised that expanding Qatar's overseas investments was a major priority for his government.
| | More than the capital needs, it is the visibility and international recognition (hence transparency) that would support them in making further inroads into the global M&A; stream. |
| Concomitant to the move is apparently a twin spin-off. The first one is to ensure a stable future cash flow for the domestic economy, which is now heavily dependent on the hydrocarbon exports.
The second is to help the global syndication market as Qatar enjoys a stable and strong sovereign credit rating, which provides a solid foundation for its corporate sector as well.
| As of February 2007, the foreign investments of the commercial banks were valued at QR14.05 billion, according to Qatar Central Bank data. |
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Many who have embarked on acquisitions are fast approaching the syndicated market to get a better financial leverage.
The 'high-pitched' acquisitions and investments, of course, came from the country's sovereign wealth fund Qatar Investment Authority (QIA), which cornered 23.6 percent stake in the London Stock Exchange (LSE) and a 'minority' stake in Swiss bank Credit Suisse, which particularly came from the secondary markets.
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The rising windfall petrodollar gains has made it imperative for Qatar, currently a $50 billion economy and expected to be in excess of $100 billion by 2013, to prudently monetise its reserves into tangible and intangible overseas assets to ensure greater diversification and sustainable economy for the posterity.
Rolling out the red carpet
Inflationary pressures in its domestic economy notwithstanding, Qatar, a home to the world's third largest gas reserves, also saw its Qatar Petroleum International, Qatari Diar, Qatar National Hotels, Barwa, QNB, Commercialbank, Qatar Islamic Bank (QIB) and Qatar Steel joining the bandwagon with their rather comparatively 'silent' moves.
The list of probable is growing with each day passing by, as could be gauged from the front page stories of local newspapers.
The enhanced liquidity and Qatar's increasing quest for overseas buys have prompted many, including Channel Islands-based Ashburton, to woo the investors and assured them of safe return on investments in overseas equity, bond and commodity markets.
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Qatar Inc is also establishing shops in tax havens such as Cayman and Marshall Islands so that they could raise resources to part finance their overseas expansion.
Qatar's journey along the M&A; path has just begun but what it perhaps needs to do now is to see that their corporate sector also seek listings in the global bourses.
More than the capital needs, it is the visibility and international recognition (hence transparency) that would support them in making further inroads into the global M&A; stream.
The Netherlands has already invited listed Qatari companies to have cross listings on its main bourse and small cap exchange Alternext and its Foreign Trade Minister Frank Heemskerk confirmed that he had broached the idea (of cross listing) with (Qatar's) Finance Minister HE Yousef Hussein Kamal.
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The move, if fructified, could help Qatar, which sits on 900 trillion cubic feet reserves and is fast establishing the Middle East's first energy exchange 'Amex', in picking up stakes in European and even American banks, many of which have severely been battered by the nagging sub-prime crisis.
Sheikh Hamad, who is the head of QIA, which is estimated to have assets of more than $50 billion, told delegates at the recently concluded World Economic Forum in Davos that the fund saw US and European banks as potential investment targets.
| | Expanding Qatar's overseas investments was a major priority for his government, says Prime Minister and Head of QIA, HE Sheikh Hamad bin Jassim bin Jabor Al Thani.
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A British newspaper recently reported that the Qatari government is considering buying a stake in Britain's second-largest lender Royal Bank of Scotland.
Seemingly supporting Qatar's moves, Damac International had said an expected recession in the US could be a blessing in disguise for the Gulf economies, which are adequately "vaccinated" against the global contagion.
"A recession (in the US) could benefit the GCC countries in that they will continue to acquire foreign assets at more attractive valuations," according to Hany Hussein, Damac President and Head of Asset Management and Equity Research.
Though the US and European countries were particularly sceptical of the sovereign wealth funds, former British Premier John Major had warned Western countries critical of such funds, saying it would be economically "foolish" and politically "stupid" to encourage protectionist measures.
| 2008: The Year Of Investments? By Oliver Cornock Subprime. According to the American Dialect Society, it was the word of 2007. It's a pity then that "sovereign wealth" runs to two words, otherwise the linguists at the ADS would have a neat opportunity, come next January 1, to record for posterity the phenomenon that is currently transforming the global financial system.
Like most things in the global economy, the two trends are not unrelated. Indeed, they are two sides of the same economic coin. The subprime crisis was triggered by reckless underwriting, but the root cause of America's current weakness is its insatiable appetite for cheap credit (and its subsequent dubious repackaging), fuelled in part by the seemingly insatiable global demand for federal paper. China, for example, is currently sitting on around $1 trillion of US bonds. That buys, or rather bought, a lot of flat screen TVs. It's not just China of course. There have been production booms throughout the major manufacturing hubs in the past few years. Germany, for example, so often troubled economically since reunification, experienced a trade surplus bigger than China's last year. All those dollars swishing around the global financial system encouraged speculation in a number of commodities, including exotic financial products such as SIVs and CDOs, but also - and importantly - oil. $110 a barrel - how much of that is carry trade from pension funds, banks and speculators? The truth is, when money is cheap and demand for manufactured goods is high, then the commodity used to fuel that production - itself subject to high demand - becomes just another easy way to turn a quick dollar.
| The ones to profit most from this trend are of course the oil and gas producers. In February, Shell announced record profits of £13.9 billion. Independent oil company (IOC) profits though are peanuts compared to what the national oil companies (NOCs) and more specifically the states that hold the reserves - are making. Take these figures for 2006 (when oil averaged out at only $60 a barrel). According to the World Bank, the global economy that year totalled some $48 trillion. Global consumption of oil stood at 84 million bpd. Now, not every one of those barrels was sold at market, but the theoretical value of all that oil was almost $2trillion, or 3.8 percent of global GNI. With 31.2 percent of global production, that means oil from the Middle East amounted to some 1.2 percent of the world economy. And that doesn't even include gas.
Oil has nearly doubled in price since those days, and some analysts are seriously looking ahead to $200 a barrel. Perhaps the above figures are out by a few billion here or there; it hardly matters. The trend they demonstrate is clear enough: for every dollar printed, one cent has the GCC's name on it. This is the context from which we should be viewing the rise of sovereign wealth. Oil and gas related sovereign wealth funds, according to estimates, currently amount to around $2.1trillion. Qatar's funds, administered by the Qatar Investment Authority (QIA), have been around since 2000. The QIA is estimated to be worth $60 billion at the moment, and the government has plans to double its size within two years. Like the Abu Dhabi Investment Authority and the Kuwait Investment Authority with Citigroup and Merrill Lynch, QIA has been in the news recently for bailing out a major Western bank, this time Credit Suisse. QIA hopes eventually to acquire 5 percent of the bank, worth around $3 billion, and has further plans to spend up to $15 billion on embattled European and US bank stocks this year.
| | The author is a Middle East specialist and Regional Editor, GCC, for Oxford Business Group, the highly acclaimed UK-based publishing, research and consultancy services organization. |
| | QIA is considered to be among the more risk tolerant SWFs, for example branching out occasionally into leveraged buyouts. Its deal with Credit Suisse remains something of a gamble, considering the subprime crisis is perhaps only half played out. In the broader macro-economic sense though, there is a certain satisfaction in seeing petro-dollars propping up the big banks, and earning some of the dividends which have historically accrued to the US as guarantor of the world's reserve currency. As Qatar's Prime Minister and CEO of QIA Sheikh Hamad bin Jasim bin Jaber Al Thani told the press, "The sovereign fund is from friendly countries, especially this region. They have no political ambitions. They are looking to invest their wealth for the people of these countries." If sovereign wealth liquidity succeeds in holding back the tide of the subprime crisis, then the US and Europe can have few complaints about that. |
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"Surprised" by the resistance to investment, Sheikh Hamad had said the idea was to help financial institutions and were long-term investors, as could be seen from the fact that QIA did not opt for a board membership in Credit Suisse.
The QIA, which is planning to open an office in Paris, is still keeping options on buying a stake in Eads (European Aeronautic Defence and Space Company), the parent of Airbus Industries, although it has an indirect holding as it owns 7.5 percent stake in French group Lagardere, which has stakes in Eads.
So much so that, French Trade Minister Christine Lagarde had said she would support the energy-rich Qatar's plans to buy as much as 10 percent of the pan-European Eads to provide "solid" backing to the parent company of Airbus.
| French Trade Minister Christine Lagarde had said she would support the energy-rich Qatar's plans to buy as much as 10 percent of the pan-European Eads to provide "solid" backing to the parents company of Airbus. |
| The QIA, along with Singapore's Keppel Corporation, is also investing in the 30 sq km Tianjin Eco-City in China. It is also a part of consortium that is bidding for Los Angeles-based Maguire Properties Inc.
Delta Two, a Qatari investment fund, had bought 17.4 percent stake in the UK food retailer J Sainsbury but global media reports suggested that the deal could have been worth £1.35 billion.
| Sheikh Hamad had led a group of investors who increased their holdings in Sainsbury to about 1 percent through Delta Two - a fund in which they have holdings with the UK entrepreneur Paul Taylor, who formerly worked with Vincent Tchenguiz.
Qatar is also creating $1 billion funds in Finland and Malaysia, similar to the investment fund Qatar said in December it was setting up with Indonesia.
However, an International Monetary Fund study viewed oil funds, which have proliferated in recent years in view of tripling of average energy prices during 1999-2006, should not have authority to spend, but be integrated with the budget to enhance fiscal policy coordination and public spending efficiency. QPI: Thinking Big
On its corporate front, the country's flagship Qatar Petroleum has specifically established an overseas arm QPI to acquire foreign energy assets.
The words of Deputy Premier HE Abdullah bin Hamad Al Attiyah that "we are looking forward to many refinery opportunities in India and China and QPI, which has LNG terminals in UK, Italy and US, will be working in upstream and downstream" is a key pointer towards the country's proactive overseas investment policies.
| QPI teamed up with Occidental to build a 350,000 barrel-a-day oil refinery in the Central American country Panama.
Marking its entry into China, QPI joined hands with PetroChina to set up a world scale petrochemical complex in the country.
QP's international arm has already announced it is looking the possibility of developing a refinery in Tunisia. QPI and Petrovietnam are looking at tapping hydrocarbon potential in Vietnam.
Besides Total and Petrovietnam, QPI has joined hands with many companies including ExxonMobil, Shell, Occidental Petroleum and ConocoPhillips to pursue and develop international energy projects outside of Qatar. | 7.5%
QIA's stake in French group Lagardere
10%
Qatar's plans to buy stake in pan-European Eads
17.4%
Stake of Delta Two in the UK food retailer J Sainsbury
$1 billion
Qatar's proposed funds in Finland and Malaysia 23.6%
The stake that Qatar Investment Authority (QIA), cornered in the London Stock Exchange (LSE)
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Similarly, Gaz de France entered into a partnership agreement with QPI for enhancing development of cooperation at an international level in areas of exploration-production, liquefied natural gas, gas storage and downstream activities.
QP has already made multi-billion-dollar investments abroad, teaming up with ExxonMobil and ConocoPhillips focusing on the Golden Pass LNG terminal in the US and with ExxonMobil and Total on the South Hook Terminal near Wales in the UK. The two terminals will receive gas from RasGas and Qatargas.
Waking up to new opportunities
Not be left behind, the other corporate houses have also upped their acquisitions and investments for imprinting their status in the global as well as regional markets. The latest came from Qatar National Hotels Company, which acquired its third international property in France for 50 million euros. The property will be converted to a five-star hotel and is scheduled to open its doors in mid-2009.
| | | The acquisition is QNH's second in Europe after the recently acquired 170-room Park Hyatt in Marbella, Spain, and the previous acquisition of a 384-room Renaissance Resort in Sharm El Sheikh, Egypt.
Another state-owned entity Qatar Diar, the real estate investment and development arm of the QIA, had bought the 12.8-acre Chelsea Barracks for £959 million.
Qatari Diar, which has projects and investments in 18 countries worldwide, is also looking to invest in the US for the first time, while Barwa, in which Qatari Diar has 45 percent stake, bought a Paris convention centre for €404mn ($542 million).
Buoyed by Qatar's outward foreign direct investments, the Greater Paris Investment Agency toured Doha in search of potential investors in finance, real estate, energy, asset management, infrastructure and utilities.
| According to a research by Jnoes Lang LaSalle, the Gulf countries had pumped $13billion in global real estate in 2006, which was 14 percent higher than that in the previous year.
As per the study, of the $13 billion, more than 50 percent was invested in the US, followed by the UK ($4 billion), Germany ($1 billion) and South Africa ($1 billion), while major investments were also made in France and Sweden. Local Banks: Deposits of different kind
The Qatari banks were also seen increasing their presence in the M&A; market, taking cue from Kamal, who favoured such route in the Arab financial industry for asset build up to enable them to partake in the $1.2 trillion oil and non-oil projects in the region in the next five years.
Qatar's second largest lender Commercialbank upped its stake in the UAE-based United Arab Bank to 38.16 percent and in the recent past it had acquired a substantial stake in National Bank of Oman.
The country's largest lender QNB has so far in this year picked up 50 percent stake in Tunisian Qatari Bank and 30 percent in a new Kuwaiti-Qatari company for Islamic financing.
| QNB, which has assets exceeding QR114 billion as on 2007, recently picked up 49 percent stake in a Syrian bank; 31.53 percent in Jordan-based The Housing Bank for Trade and Finance (having operations in Palestine, Bahrain, Algeria, Syria, UAE, Libya, Iraq and Jordan); 23 percent in Iraq-based Mansour Bank and 20 percent in Al Jazeera Islamic Company.
The third largest lender Doha Bank acquired a "strategic" stake in Yemen's Credit Cooperative & Agricultural Bank.
QIB, the fourth largest lender that earned a substantial part of its operating profit came from investments; especially gains from real estate sold by funds it manage in Europe, has reported that it may acquire a bank in Egypt in the next 6-12 months.
| | Deputy Premier and Energy Minister HE Abdullah bin Hamad al Attiyah says, "we are looking forward to many refinery opportunities in India and China." |
| QIB, which has established its European Finance House in London and Asian Finance Bank in Malaysia, is eyeing a substantial share in the global banking space.
As of February 2007, the foreign investments of the commercial banks were valued at QR14.05 billion, according to Qatar Central Bank data.
Moreover, QIB is eyeing Pakistani banking space and another insurer Qatar Insurance Company has established two firms in Pakistan to offer Takaful products.
Pakistan also saw announcements that Qatar National Cement Company, along with QIA and Qatari Diar, would be establishing a cement factory in the Asian country. | 350,000 barrel-a-day
Capacity that QPI & Occidental created to build oil refinery in Panama
Euro50 million
Value of Qatar National Hotels Company's third international property in France
38.16%
Commercialbank's stake in UAE-based United Arab Bank
900 trillion cubic feet
The size of Qatar's gas reserves |
| Losing its monopoly within, but gaining grounds abroad
In the telecom sphere, Qatar Telecom acquired 51 percent stake in Kuwait's Wataniya Group having operations in six countries; 25 percent in Asia Mobile Holdings (AMH) for expanding into the Asia-Pacific region through its strategic alliance with ST Telemedia (Singapore) and 78 percent in ATCO Clearwire Telecom for entering Pakistan and Jordan. It, along with Saudi Arabia's A A Turki Corporation for Trading and Contracting, had bought 75 percent stake in Pakistan's Burraq Telecom.
"Going forward, we will continue to focus on international expansion coupled with consolidation of our existing businesses," according to Dr Nasser Marafih, Qtel Chief Executive Officer.
| Booz Allen Hamilton, a financial services consultant, said the Middle East and North African region was set to witness consolidation in the telecom sector since mergers among 'equal-sized' operators would become inevitable.And the trend continues...
Qatar Insurance Company had picked up 40 percent management stake in its new Kuwait joint venture. United Development Company had in last year completed 60 percent buyout in Turkey-based wastewater treatment entity Millenya Inc.
Industries Qatar's subsidiary Qatar Steel had picked 25 percent stake in Bahrain?s Gulf Industrial Investment, 49 percent in Mauritanian Guelb el Aouj Iron Ore project and 9 percent in Australia's Sphere Investment, while keeping options open for further acquisitions.
Even as Qatar strives to ensure a stable and sustainable economy, experts caution that care should be taken to keep its domestic front intact as the increased need for foreign exchange in view of rising M&As; and riyal's fixity with dollar were bound to create some imbalances.
"It is quite logical and reasonable for a relatively domestic debt-free country like Qatar to use its resources in leveraging returns but that should not burden the domestic economy," an economist said. |
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This article is reproduced with special permission from Qatar Today - Qatar's only news, business and lifestyle magazine |
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