Qatar on the acquisition trail

28 November 2011

As Doha looks to diversify its assets, state investment vehicles are making major investments in the real-estate and other sectors overseas

Key fact

Qatar investment Authority, Doha’s sovereign wealth fund, was founded in 2005

Source: MEED

Now the capital expenditure in developing its hydrocarbons infrastructure is over, Qatar finds itself in an enviable position. Its citizens are the world’s wealthiest people per capita and Doha has a huge stockpile of petrodollars left over to spend on whatever it likes. 

Aside from spending on infrastructure to host the 2022 World Cup, Qatar is making several investments at home and abroad.

Qatar’s enterprising tradition

“Qataris have been trading for hundreds of years and this enterprising tradition is driving Qatar’s investments now,” says a local banker. “They are lucky now because they have capital available when many other countries do not.”

Leading the way for the government is the Qatar Investment Authority (QIA). The sovereign wealth fund was founded in 2005 and manages the country’s broad investment portfolio.

The QIA has several domestic investments that are operated with the goal of making Qatar an attractive place for foreign investment. On this front, its mandate is to support Qatar’s growing economy, especially in the banking, finance and real-estate sectors.

The Qatar Investment Authority owns famous properties abroad, such as the Excelsior Hotel Gallia in Milan

Many of the country’s four and five star hotels are owned by the QIA through its subsidiary Qatar National Hotels (QNH). Properties in the portfolio include the Doha Marriott Hotel, Sheraton Doha Resort & Convention Hotel, The Ritz-Carlton Doha and the Movenpick Hotel Doha.

The QIA also invested in hotels abroad and owns famous properties, such as the Excelsior Hotel Gallia in Milan, along with hotels and resorts in countries including Egypt, Oman and Morocco.

Luxury and five-star accommodation is the favoured investment, although specialist resorts in eco-tourism are also considered. Real estate and development has been prioritised as a major area of the QIA’s foreign investment, especially in mature markets, such as London and Kuala Lumpur. To support its growing property and development portfolio, the QIA established a subsidiary: Qatari Diar.

Qatari Diar not only manages the QIA’s real-estate portfolio, but also acts as a master developer on a number of projects.

“The Qatari royal family and the QIA are cautious when it comes to [Qatari] Diar developments,” says the banking source. “It tends only to operate at the high end of the market or with specialist eco-friendly projects.”

This caution was evident in 2010, when a large glass building due to be constructed at the company’s proposed $4.6bn Chelsea Barracks project in London was shelved. The modernist structure was planned to be built near historically significant structures, but was cancelled after the UK’s Prince Charles intervened personally with Qatar’s emir, Sheikh Hamad bin Khalifa al-Thani.

QIF Investment by sector
Sector Percentage
Real estate6.5
Source: QIF

Such interventions by the upper echelons of the Qatari royal family are extremely rare, however, with investment decisions usually made by the QIA board with full financial and legal compliance. Changing the architectural design of an apartment building is a relatively straightforward piece of decision-making, but many of the QIA’s investments are in the global financial sector, or are stakes in large multinational corporations. 

“The QIA makes a lot of investments in the banking and finance sectors and I can only see royal intervention then when not doing so might hurt Qatar on a diplomatic basis,” says the banking source.

Highly diplomatic

The chances of diplomatic relations between Qatar and another country being hurt over a simple business transaction are extremely small, but Qatar nurtures its reputation as a leader in diplomacy and mediation.

Qatar’s sovereignty and its hydrocarbon reserves are integral to maintaining this reputation and Doha will not jeopardise its close relationships with Western countries and powerful neighbours, such as Iran. This position has been proved recently by Qatar, which has helped nations that have requested its help in times of need.

In 2008, Qatar helped Sudan to negotiate a peaceful resolution between warring factions and is now helping Libya to rebuild after the demise of late Libyan president Muammar Gaddafi. 

“It is usual for Qatar to offer financial assistance to nations who are suffering due to a number of different issues,” says Mehran Kamrava, a senior academic from Georgetown University in the US. “It is a strategic plan that they may not see the benefit of in the short term, but which will pay off in a number of different ways in the long term.  

Such largesse could now help Eurozone nations that are struggling with debts, but have some appealing assets that require further investment from key partners.

The countries may be suffering a debt crisis, but many of the firms in countries such as Greece and Spain are successful multinational concerns with tens of thousands of employees.

These businesses were built up during the boom years in Europe, but are now looking for wealthy partners to shore up any weak areas that could lead them into financial difficulties. 

In October, another subsidiary of the QIA, Qatar Holding, took a 9.9 per cent stake in the Greek mining firm European Goldfields. 

The deal is expected to secure 1,500 jobs in Greece. Qatar Holding has pledged to loan $600m to the company, as well as offer $150m of loan notes. If all of the offers are taken by Goldfields and its shareholders, Qatar Holding’s stake will rise to 30 per cent.

Strictly financial

Qatar has been quick to stress that the deal is ‘not charity’ and that it is looking for other deals in Eurozone countries, which can bring value to its assets.

One such deal is the $2.8bn stake Qatar Holding bought in Spanish utility firm Iberdrola. The fund acquired 6.2 per cent of the firm and will form a strategic partnership to look for new business in the Middle East. A large regional headquarters for Iberdrola will be built in Doha, which will develop new income streams across the electricity value stream.

Other deals include a $200m stake in the troubled Belgium-based Dexia Banque Internationale a Luxembourg by unspecified Qatari investors, believed to include royal family members.

As well the real-estate sector and the recent European investments, the QIA has several large investments in other areas, including stakes in bluechip companies and investment funds, as well as a select number of high-profile investments.

All of these ventures and holdings are controlled by Qatar Holding. The company was created in 2006 to invest in private and public entities, as well as make direct investments on behalf of the QIA.

Qatar’s diverse investments

Assets include a 14.7 per cent stake in the Canary Wharf business district of London as well as Pavilion Kuala Lumpur, a mixed-use development in the Malaysian capital. The fund also recently paid Egypt’s Mohamed al-Fayed $2.3bn for the iconic Harrods department store in London.  

The QIA holds stakes in several banks across the world, including Switzerland’s Credit Suisse and invests heavily in funds, such as the Qatar Investment Fund, as well as retaining an interest in the London Stock Exchange.

Qatar Holding also owns a 25 per cent stake in the UK supermarket giant J Sainsbury Group, as well as a stake in German car giants Volkswagen and Porsche. “The blue chip investments add a touch of glamour and most of them are sound long-term propositions,” says the banking source.

A trend has emerged in which the Qatari state funds look to the UK for real estate and Germany for potential stakes in industrial and engineering firms.

German acquisitions

In a recent interview with a German newspaper, Qatar Holding chief executive, Ahmad Mohamed al-Sayed said that the country offered some good opportunities for the fund and that he believed some companies were undervalued and offered potential for new partnerships.

Doha has made it clear that it is looking for opportunities and it has cash to spend, so analysts are expecting a raft of investments by its sovereign wealth funds, especially in Europe, over the coming months.

What also helps Qatar in its overseas ventures is that many companies like Iberdrola see the Middle East as a potential driver for growth and would welcome the chance to form a strategic partnership with a state-owned firm.

Qatar is still developing and is planning to spend billions on its infrastructure over the next decade. With Europe and the US in the financial doldrums, the country offers many multinationals a realistic chance to ride out the recession and turn a profit.

Another factor is that with such a small indigenous population, about 250,000 people, Doha has realised that it does not need to diversify its economy in the same way that its larger neighbours, such as Saudi Arabia, do.

Instead, it is seeking to diversify its asset base by investing in a multitude of different industries in developed countries.

With Europe and the US on the brink of a second recession, the time could not be better.

Qatar Investment Fund

Qatar is striving to diversify its investment portfolio through high-profile ventures overseas, but there are ever increasing opportunities for foreigners to invest in Qatar.

Over the past five years, several investment vehicles have started allowing foreign nationals from both within and outside the GCC to invest capital in Qatar.

The Qatar Investment Fund (QIF) is one such entity and is a unique concept for foreign investment within the GCC.

The QIF is listed on the London Stock Exchange (LSE) and offers investors the chance to be part of a fund that invests in businesses in Qatar and, to a lesser extent, the wider GCC.

“People sometimes have a misconception that the QIF is some sort of Qatari sovereign wealth fund,” says Sandeep Nanda, the QIF’s fund manager. “However, anyone can buy shares in the fund on the LSE.”

Almost 96 per cent of the QIF’s investments are in Qatar, with about 4 per cent in other GCC states. The fund is mandated to invest a minimum of 85 per cent in Qatar businesses, with 15 per cent available for the GCC region if required.

About 60 per cent of the fund’s investments are financial and Nanda believes that Qatar’s banking sector is well positioned to take advantage of the forthcoming infrastructure construction boom.

“There is a lot of work to do and the banks and financial institutions will gain benefits from this infrastructure expansion,” he says.

“Some banks in Qatar have experienced five-fold increases in size over the last decade as they finance the country’s rapid growth.”  

Nanda insists that although several Qatari government institutions have large stakeholdings in the QIF, the investment body retains complete independence when making investment decisions.

“We have an independent board and the board is very active on the corporate governance side,” he says. “There is no question about anyone having input into what we invest in from any other organisation or government body.”

Qatar plans to spend almost twice its gross domestic product (GDP) in the next five years on scores of projects aimed at improving infrastructure. That equates to about $200bn.

“There cannot be many other countries that are prepared to spend twice their GDP in five years,” says Nanda. “It is a huge amount of spend and should benefit everyone.”

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