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Qatar’s Leverage Over Banks Is On The Wane

Qatar with an IPO

Qatar needs to find a home for billions of dollars raised from gas exports each year, writes Una Galani.

May 22, 2013 9:43 by

By Una Galani

Qatar no longer holds the balance of power when needy banks come seeking equity. The terms of recent investments by the country’s sovereign wealth fund in Russia’s VTB and Germany’s Deutsche Bank suggest that the emirate can no longer extract unusually favourable terms.

Five years ago, a global capital freeze meant cash-rich Qatar could make Barclays and Credit Suisse offer equity at a big discount or hybrid debt with double-digit coupons. True, investing in financial firms in the midst of a historic crisis was risky. All the same, the juicy terms made it easier for Qatar to enjoy outsize returns.

Today it’s a different story. Equity investors are looking for cheap entry points back into the market rally. Qatar isn’t in need as a capital provider of last resort. So there were no bells and whistles with its latest investments. Of the $3.3 billion issue by VTB, the emirate is expected to be allocated shares worth around $500 million, and at the same 10 percent discount offered to existing shareholders as well as sovereign funds from Norway andAzerbaijan.

The careful stage management of Deutsche’s recent 3 billion euros placing presented even less scope for Qatar to bag a big bargain. The new shares were sold at close to the prevailing market price. Qatar picked up at least 100 million euros of the issue, the Financial Times reported. The days when it would bank roll entire offerings may have passed.

Qatar can expect lower returns from its new investments, although they also involve less risk. As a sovereign buyer, part of Qatar’s return from VTB may be political. A closer relationship with Moscow wouldn’t hurt Doha’s foreign policy goals. The two are at odds over how to resolve the situation in Syria. China used its 2011 investment in VTB as a platform to co-invest with the bank in potash miner Uralkali and gold miner Polyus – albeit with mixed success.

Qatar needs to find a home for billions of dollars raised from gas exports each year. Regulation disincentivising banks from investing in each other gives the emirate some advantages. But it is no longer the only answer to the financial sector’s needs.

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