Qatar investment spree is double-edged sword

Flush with growing revenues from gas reserves and little troubled by domestic unrest, Gulf country makes high-profile investments.

By DAVID ROSENBERG / THE MEDIA LINE
September 26, 2011 13:22
Vice Chairman of Qatar Holding and Volkswagen AG's

Vice Chairman of Qatar Holding and Volkswagen AG's chairman. (photo credit: REUTERS)

Flush with growing revenues from its natural gas reserves and little troubled by domestic unrest that would demand more spending at home, Qatar is going on a massive investment spree that analysts say may add political and economic weight to this ambitious Gulf kingdom.

But analysts warn it can also risk saddling the emirate with losses on a rapidly executed and poorly strategized investment drive.

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In the latest of a series of high-profile investments, the Reuters news agency reported on Thursday that Qatar is in talks with BNP Paribas and other unnamed French banks to take equity stakes to help them raise capital to cover their exposure to troubled Euro-zone debt. Baudoin Prot, chief executive of BNP, France’s largest lender, denied the report, but BNP executives were reportedly touring the Gulf in search of investment.

Holding the world’s third-largest natural-gas reserves, Qatar’s economy is booming and last year pulled ahead of Luxembourg to become the world’s wealthiest nation on a per capita gross domestic product basis. The International Monetary Fund estimated last week that the emirate’s GDP will surge 18.7% this year, making it the world’s fastest- growing economy for a second year.

Qatar is the world's largest liquefied natural gas (LNG) exporter, able to produce 77 million metric tons a year of natural gas chilled to liquid form. It has already begun to parley its wealth into influence, sponsoring the influential Al-Jazeera television network, hosting the 2022 World Cup, and dispatching air force fighters to help the NATO campaign in Libya.

“Based on their traditional values as merchants and tribes, they are reaching out across the globe to invest and to shape the political scene so that they can conduct more business,” Theodore Karasik, director for research and development at the Institute for Near East and Gulf Military Analysis, told The Media Line. “Investment in financial institutions and purchasing properties is about diversifying interests. Hosting sports events and conferences attracts attention to the role Qatar wants to play in regional security and business arena.”

The flood of cash into the kingdom has enabled Qatar Investment Authority (QIA), the country’s sovereign wealth fund, as well as the country’s private sector investors, to snap up assets in Europe, principally Britain. But the speed of the acquisitions and the lack of information on how the fund operates and where its assets are invested have raised concerns.


In August, Qatar injected 500 million euros ($670 million) into a merger of Eurobank EFG and Alpha, Greece’s two biggest lenders, and acquired a 160 million-euro stake in the power company Energias de Portugal. The same month Qatari Diar, the QIA’s property arm, announced it had won a bid to buy London’s Olympic Village in a 557 million pound ($855 million) in a joint deal with the UK developer Delancey.

In March, it bought a 6% stake in the Spanish power company Iberdrola by Qatar Holding for about $2.8 billion and in May 70% of the French soccer team Paris Saint-Germain. In a rare case of frustrated ambition, QIA lost a bid three weeks ago to acquire the media agency that controls the broadcasting rights to the FIFA World Cup.

The Gulf state’s wealth fund contains marquee British investments, including luxury London department store Harrods and stakes in Barclays Bank, retailer J. Sainsbury’s and the London Stock Exchange. Qatar is said to be in talks with the German government about acquiring a stake in the pan-European aerospace concern European Aeronautic Defense and Space Company (EADS), maker of Airbus jets.

The investment in the Greek bank merger and possible future stakes in French banks position Qatar as a White Knight for financially troubled Europe. And, if Qatar goes ahead with the EADS acquisitions, it will become a player in the world’s leading maker of civilian aircraft and upset the careful balance between its two biggest shareholders, the governments of France and Germany.

There are other calls on Qatar’s capital besides marquee overseas investments. Business Monitor International expects Qatar to spend as much as $100 billion over the next five years to prepare the infrastructure for the 2022 World Cup. King Hamad Bin Khalifa Al-Thani has also used sovereign wealth to prop up the domestic banking sector and to award public sector workers salary and pension raises of as much as 120%.

But with the country of less than one million people enjoying political quiet, Qatar is unlikely to pump much more money into domestic spending. Indeed, said Yazan Abdeen, a fund manager at ING Investment Bank in Dubai, the government risks stoking inflation if it directs too much of its capital to domestic projects.

Established just six years ago, the QIA has about $85 billion, making it the world’s 12th-largest sovereign wealth fund. With money pouring in from natural gas, the fund is set to grow in coming years. But the Sovereign Wealth Institute, a Las Vegas-based group that monitors the industry, rates QIA’s transparency at 5, about mid-way on its ranking.

“Qatar’s strutting of the world stage would seem more savvy if the QIA was half as transparent about its strategy for managing its existing wealth as it is for domestic development,“ Una Galani of Reuters Breaking Views, said in a September 19 comment.

“Abu Dhabi, China and Norway all provide some kind of breakdown of spending. As it stands, Qatar’s investments so far look like a large concentration of risk.”

She estimated that at least 20% of Qatar’s assets are confined to a small number of purchases made over the last two years, including stakes in German car makers Porsche and Volkswagen, Agricultural Bank of China, Santander Brazil, Spain’s Iberdrola and construction firm Hochtief.

Abdeen said Qatar’s strategy is to take advantage of declining market value of financial institutions in Europe, where the debt crisis has wreaked havoc of stock prices, to extend its holdings in the sector. He said there isn’t enough information about QIA’s portfolio or assess what kind of risk the fund is taking.

“From where I can look at it now financial sector in Europe there will be a lot of pain before see gains - that’s from my perspective as an investor on ground,” Abdeen said. “But the deals that offered to them are better than the deals that are offered to me.”


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