Libyan conflict keeps Qatar’s British ambition at bay

Libyan conflict keeps Qatar’s British ambition at bay

Source says Qatar decision-makers focused on Libya crisis; Small Qatar stake could shore up Centrica shares; Seen twinning big gas buyer with biggest exporter

May 18, 2011 3:16 by Reuters

Qatar is more likely to buy a small stake in Britain’s Centrica than make a bid for the gas utility, in line with other recent investments by the world’s largest gas exporter, banking sources say.

But the Gulf emirate may be in no hurry to do so as Qatar’s leaders are more focused on sorting out the crisis in Libya, a source close to the Qatar Investment Authority (QIA) said.

“Not that they (QIA) aren’t looking at opportunities, but the top priority now is resolving the conflict,” the source said. “They have passed on a few items over the past few months.”

Centrica shares gained nearly five percent last week following rumours that the (QIA) was interested in buying a stake or even bidding for the British Gas owner.

That speculation gave a welcome lift to shares in Centrica, Britain’s biggest household energy supplier, which have shed 4 percent since the start of the year, underperforming a 4 percent rise in the FTSE 350 utilities index.

The possibility of a complete QIA buyout of Centrica is remote, analysts and banking sources say, while even a small stake purchase is unlikely in the near future.

“There is a small number of senior decisionmakers in the country, with most of the top decisions coming from the Emir himself and the Prime Minister,” the source said. “Right now, they are completely focused on bringing resolution to Libya.”

Earlier this month a coalition, including Qatar, agreed to set up a fund to help Libyan rebels, handing them a lifeline potentially worth billions.

A Qatari investment in a utility like Centrica would not be a first. In March, Qatar Holding bought 6.16 percent of Iberdrola SA for 2.2 billion euros, a deal it was able to complete despite the Libya distraction.

“In general, utilities make sense for QIA in that they’re low-risk,” said one Doha-based banking source. “There’s no doubt that they have the capacity, as well as the appetite.”

The emirate already has a relationship with Centrica, which in February signed its first long-term contract to buy liquefied natural gas (LNG) from Qatar.

Investec analyst Angelos Anastasiou said he thought the three-year contract was “just the start,” and could be extended into a longer-term arrangement over the next few months.

“The initial deal made sense, extending it (will) make sense, and ultimately Qatar cementing the deal by buying a 1 percent to 4 percent stake would also make sense,” he said.

A SMALL STAKE

Analysts say Qatar could become a passive investor in Centrica, like Malaysia’s state-run Petronas, which holds a 3.86 percent stake and is among the top three shareholders in the company, according to Thomson Reuters data.

Invesco Asset Management, with a 5 percent stake, is the top Centrica shareholder.

“If they were to take a stake, they will probably buy in the market,” Investec’s Anastasiou said.

Execution Noble analyst Lawson Steele agreed that QIA would be more likely to take a small stake.

“Qatar is building a lot of LNG capacity and need a destination for that,” Steele said. “Centrica have a huge gas customer base and need to buy a lot of it…It is just marrying a producer and a buyer of gas.”

Such a deal would be timely. Following a surprise tax increase in the UK budget, Centrica said it will shut down two UK gas fields for a month of maintenance and may keep another shut depending on wholesale gas prices.

“They have to replenish those assets,” Steele said. “They can either buy them in the market, or enter into a long-term contract. I think they will do both, but it would make sense to have a contract with one of the largest suppliers of gas.”

Qatargas is Britain’s biggest LNG supplier, and the contract to supply Britain’s biggest energy retailer boosted the small Middle Eastern country’s share in Europe’s biggest gas market.

VALUE-DRIVEN APPROACH

Qatar wants to invest in areas that can add value to its domestic infrastructure, said Abdul Hakeem Mostafawi, CEO of HSBC Qatar, which advised the QIA on its purchase of a stake in German builder Hochtief last year.

“They take a value-driven approach, rather than just saying ‘I want to buy something.’… The Qataris want to be part of the whole value chain,” he said.

The QIA could not be reached for comment, while Centrica declined to comment. (By Adveith Nair and Regan E. Doherty; Editing by Alexander Smith)