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DEMANDING RESPECT: Qatar flexes its muscles with Xstrata strategy

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By holding out against Glencore's bid for mining giant Xstrata, Qatar is not just gunning for more profit from its stake, but showing Western financiers it won't be pushed around.

September 6, 2012 5:23 by

With a sovereign wealth fund analysts estimate at about $100 billion, the rich Gulf state has bought assets around the world over the past several years, including sizeable stakes in European banks, football clubs and luxury car makers.


But liberal spending threatens to create an image of Qatar as an extravagant investor that buys trophy assets mainly for the prestige, which could hurt its ability to negotiate attractive deals.


By taking a hard line on the value of its 12 percent stake in Xstrata, and potentially blocking the firm’s $30 billion merger with commodity trader Glencore, Qatar is signalling to the investment community that it is not a soft touch, bankers and analysts said.


This motivation suggests Qatar is unlikely to bow to last-minute pressure to accept a compromise price, as the hours tick away before Friday’s vote by Xstrata shareholders on the bid.


“With the Glencore/Xstrata transaction, Qatar has shown that it can also block mega-mergers, along with grabbing trophy assets,” said Rachel Zeimba, senior analyst and sovereign wealth fund expert at Roubini Global Economics in London.


“This is part of the evolution of the fund as a global investor to reckon with.”




Qatar Holding, the investment arm of the sovereign wealth fund, said last week that it was “determined” to vote against Glencore’s current all-share offer.


The Qataris left the door open for a deal by saying they backed the tie-up in principle, but they reiterated that they would vote it down unless the terms were improved.


Previously, Qatar had demanded that Glencore’s offer of 2.8 of its shares for each Xstrata share be raised to 3.25.


The Xstrata case may be the first time that a Gulf sovereign fund has publicly called for more value in a transaction, bankers said. Traditionally, Gulf funds have preferred to make their wishes known behind the scenes, in keeping with business practices in the region.


“From the point of view of Qatar Holding, the thinking is that you have to be careful when you are buying something from a trader and even more careful when you are selling something to a trader,” a banker who has previously advised the Qatar fund told Reuters.

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