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24 Sep 2007 06:26
The jostling for dominance among the world’s leading stock market operators has seen many alliances and feuds, but it has rarely had a day as dramatic as last week, when some of the Middle East’s most powerful sovereign funds took the sector by storm.
Competing Gulf emirates of Dubai and Qatar on Thursday splurged an estimated $3,2-billion or more on shares in the London Stock Exchange and Nordic bourse operator OMX. At the same time, Dubai struck a partnership deal with Nasdaq which it hopes will eventually deliver a stake worth an estimated $2,02-billion in the US operator.
From Carlyle Group to P&O, from Ferrari to Four Seasons, Gulf sovereign funds have been rapidly scooping up major interests in some of the Western world’s biggest businesses.
They have not been this active since the oil price peaks of the 1970s—and, with the era of cheap borrowing apparently at a close, there is every sign such cash-rich funds could again pick up the pace of their overseas investment programmes.
Among the busiest—and most active in Britain—have been funds from Qatar and United Arab Emirates members Dubai and Abu Dhabi.
Dubai, operating through three main funds—Dubai Holdings, Dubai International Capital and Istithmar—last year took control of ports operator P&O and budget hotels Travelodge. It remains an investor in the Tussauds theme park empire, including Alton Towers and Legoland, but recently sold 80% of the business. DIC also came close to owning Liverpool football club.
Meanwhile, Abu Dhabi’s Mubadala fund this week emerged with a 7,5% stake in US private equity firm Carlyle. It also has a 5% holding in Ferrari.
The latest wave of petrodollar investment has caused consternation in the US, where many politicians have argued sovereign funds—particularly when they are investing in assets that are strategically important to a nation—should not be treated like regular investors.
The prospect of a sheikhdom becoming the largest shareholder in the Nasdaq was enough last week to draw comment from US President George Bush, who gave assurances that the “national security implications” would be thoroughly scrutinised before the deal was closed.
Influential senator Charles Schumer was quick to draw parallels with Dubai’s takeover of P&O, which included strategic ports in the US. That deal was eventually approved by the US committee on foreign investments but not without attracting a political storm. The controversial US sites were nevertheless swiftly sold on to a domestic operator.
On Dubai’s planned Nasdaq holding, senator Schumer said: “At this early stage, this deal gives me pause. While I am and have been a big proponent of foreign investment in the United States, we must still be careful of the kinds of investments made in our critical infrastructure, financial exchanges, utilities and other areas that are vital to the operation and security of our country.”
It seems clear that both Dubai and Qatar also regard ownership of the world’s leading stock exchange operations to be of central strategic importance. Both are vying to be the region’s leading financial centre and a bridgehead to emerging markets further east.
Qatar is a relative newcomer to the ranks of Middle East high spenders. Though it does have some oil reserves its recent elevation to the ranks of the energy rich has come from its huge gas reserves. Qatar is said to be sitting on 15% of the world’s natural gas—giving it reserves comparable to those of Iran and about half those of Russia. Over the last decade it has been building up its exports of natural gas, first to Japan but in recent years to the US and Europe as they have become increasingly dependent on energy imports and have built the facilities to allow them to import liquefied natural gas.
The expansion of its LNG business, built around a massive offshore field, coupled with lower transportation costs and new markets has given substantial fire power and its acquisition war chest is likley to increase as production rises over the coming years.
Abu Dhabi is the energy hub of the United Arab Emirates, holding the bulk of the UAE’s gas and oil reserves, which puts it well up the global league table for reserves of both fuels.
It joined the ranks of the oil rich towards the end of the 1950s, when its huge reserves were first tapped, making Qatar something of a newcomer.
The emirate has an estimated $1 000-billion invested abroad and its 420 000 citizens are reckoned to be worth about $17-million each—excluding the emirate’s huge population of foreign workers.
Despite its oil wealth Abu Dhabi is seeking to diversify to reduce its dependence on its energy resources.
Dubai, like Abu Dhabi a member of the UAE, has no such luxury. It does not have Abu Dhabi’s abundance of oil and gas. Instead it has built its success on its location, re-inventing itself as a top tourist attraction and, behind the glitz, a serious international business and financial centre—turning, in the words of one observer, the cash from its oil rich neighbours into capital. - Guardian Unlimited Â
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