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- The future of a single currency for the GCC remains in doubt. -

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QATAR’S GROWING APPETITE

TheEDGE’s economic barometer, Karim Nakhle, asks: Is the global economic crisis over or is it the calm before the storm?In a world shaped by science and technology, measuring physical changes in the atmosphere to predict the weather and seek refuge from storms is easy, but measuring the economic climate changes, even long after the economic storm has hit our shores, still seems impossible.

OCTOBER 2009

position on the international market in several sectors.Sitting on about QR4.4 billion worth of profits from its

eight-month-long investment in UK-based bank, Barclays, Qatar’s foray into European mergers and acquisitions is looking a lot more successful today than what it was this time last year.

The Qatar Investment Authority (QIA), Qatar’s sovereign wealth fund, and Challenger, a vehicle owned by the state’s royal family, jointly made the Qatari investment in Barclays.

It was QIA that was looking somewhat out of its depth 12 months ago. Having shelved a takeover bid for supermarket giant J Sainsbury at the last minute in late 2007, in July last year it emerged that Four Seasons (the UK nursing homes operator QIA bought through the Three Delta fund in 2006) was in trouble.

The high-profile collapse of the bid for J Sainsbury led to questions about QIA’s deal-making experience and this was only compounded by the failure of the highly leveraged buyout of Four Seasons. However, QIA is benefiting today from steamy returns from its bet on Barclays.

QIA is focusing on buying stakes in premium companies of the European corporate world.

QIA had to compete hard to put its money to work, and successfully did so, by acquiring stakes in Credit Suisse, which hiked to 8.9 percent after the Swiss bank’s capital raising in October 2008.

In the post-credit crunch world, Qatar’s liquidity is regarded as a valuable commodity and, as such, the investment landscape is infinitely more amenable to a sovereign wealth fund looking for opportunities. It can make choices rather than trying to win auctions.

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The worlds’ seasoned economists, pioneering bankers, and avant-garde technology gurus, monitored defencelessly the rise and fall of modern empires and sector leaders; our economic connoisseurs could not

reform, reshape, or restructure market sectors and industries, but were instead were left to watch helplessly, with fingers crossed, as markets fluctuated, hoping that their life savings, house and job, would not be next to go down the drain.

However in the world of finance and business, some companies share the rain, but nobody enjoys sharing the sunshine – one company’s misfortune is often another company’s opportunity.

The opportunity to turn around their operation, expand, grow, develop new markets through mergers or acquisitions of competitors, peers, and if luck is in their favour, pioneers.

Value investors see an opportunity in every calamity. Mergers and acquisitions often illuminate their thoughts, pour fuel on their passion and feed their greed when others are fearful. Value Investors are often dormant, laying low or in the shadows, but the moment they spot a light shining out on their targets, no matter how bright or dim, they splash out a spring of investments. The most lucrative part of their investment journey comes after an acquisition is made.

TAKE IT FROM BUFFET:

Warren Buffett, American investor and the CEO of Berkshire Hathaway, has plenty to say on the matter.

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price…Most people get interested in stocks when everyone else is. The time to get interested is when no one else is.” In his Berkshire Hathaway 2000

Chairman’s Letter, the doyen of investors noted: “The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behaviour akin to that of Cinderella at the ball. They know that overstaying the festivities – that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future – will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one great party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands.”

Little is known about the Qatari investor’s flair for nosing out the right investment, but their courage to acquire any given opportunity is admirable, a real phenomenon.

Industry leaders in Qatar are following in the footsteps of Warren Buffet having started their ‘corporate shopping spree bonanza’, acquiring global players, and cementing their

ECONOMIC BAROMETER

- Qatar is in discussions with global players about mergers and acquisitions -

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ECONOMIC BAROMETER

MOST RECENT ACQUISITIONS INCLUDE:

Porsche Automobile Holding SE, Qatar Holding bought a 10 percent stake in the vehicle manufacturer and took over most of the company’s options for Volkswagen AG (VW) shares as part of an agreement struck in August, under which the two companies will merge by 2011. Qatar Holding announced it would acquire a 17 percent stake in VW, as part of a deal that will exceed a total investment of QR36 billion.

In a recent statement, Qatar Holding said the deal would see it become the third largest shareholder in VW, after Porsche and Lower Saxony.

The purchase follows the UAE’s Aabar Investment acquisition in March, of a 10 percent stake of Daimler AG, famed for its Mercedes-Benz brand, indicating continuing Gulf interest in the European automotive sector despite the economic downturn.

Also in its statement, Qatar Holding said that Porsche would establish research facilities in Doha as part of the deal.

The latest investment in Porsche could prove to be just as successful for QIA as the Barclays deal has.

Qatar Telecom QSC raised its stake from 9.9 to 42.9 percent, by acquiring a further 33 percent stake (or 426.8 million ordinary shares) in Liberty Telecoms Holdings (a telecommunication services provider) for QR104 million strengthening its partnership with the diversifying San Miguel Corp (SMC).

While Qtel has already established its presence in Liberty earlier on, it was not able to immediately get hold of the stocks because of a four-year trading suspension on the stock. The suspension was only lifted recently.

SMC and Qtel plan to groom Liberty into a leading telecommunication company in the country, with voice calls and short messaging system or ‘texting’ forming part of its core businesses offerings.

Recognised as a booming market, Qatar has also enjoyed its fare share of acquisitions within the country, not just on a cross-border level. GDF Suez announced in the summer, the acquisition of Texas-based Anadarko Petroleum Corporation’s 60 percent share in Qatar’s offshore Block 4. GDF Suez will become the operator of the license, which covers 3132 square kilometres and is said by the company to contain several exploration prospects. In 2008,

GDF Suez signed a memorandum of understanding with Qatar Petroleum International (QPI), the international division of state firm Qatar Petroleum to develop international cooperation between the two groups, especially in the areas of exploration and production, LNG, storage and downstream gas activities. GDF Suez also won the bid for Ras Laffan C, Qatar’s largest electricity generation and seawater desalination project, which involves the construction of a 2.73 gigawatt (gw) power plant and a 286,000 cubic metres per day (cmd) desalination facility.

NYSE Euronext, the holding company of NYSE Group in the US, Europe’s Euronext N V and operator of the world’s largest stock exchange group, has set a foot in Qatar by acquiring a 20 percent stake in the Qatar Exchange for QR727 million as part of the deal with its parent company, Qatar Holding.

The deal gave birth to the new Qatar Exchange based on NYSE Euronext technology. The QIA through Qatar Holding, will own the remaining 80 percent of the stake.

The QR727 million share is the largest investment to date by NYSE Euronext in a foreign stock exchange. NYSE had initially planned to allocate an investment capital of QR910 million in order to acquire a 25 percent stake. The financial outlay was later reduced to QR727 million after the Qatari government announced it was planning to publicly list the

Qatar Exchange in the near future. NYSE Euronext secured the

deal outpacing the competition from the London Stock

Exchange, which was also keen to expand its business in the region.

Qatar, a major exporter of liquefied natural gas (LNG) aims to become the second-largest economy in the Gulf Cooperation Council (GCC) region by 2015 and NYSE Euronext expects to benefit from the growth potential.

Both partners aim at boosting the business in the Gulf region by competing with the Abu Dhabi and Dubai exchanges.

As for the result, were these mergers and acquisition beneficial? Were they some great investment opportunities during tough times? That remains to be seen, and will only be judged when the time is right – you only find out who is swimming naked when the tide goes out.