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Qatar stakes in Siemens, Shell reflect drive to step up development
State seeks stakes in companies pegged for role in its domestic development; Sees strong long-term outlook for commodities; Turns towards energy, diversifying bank, property-heavy portfolio
May 24, 2012 2:19 by Reuters
Qatar’s purchase of stakes in engineering group Siemens and oil giant Shell follow a pattern of the Gulf Arab state investing to accelerate its domestic development and, in the case of Shell, underlines its long-term faith in commodity prices.
Infrastructure development is particularly important as the world’s No.1 liquefied natural gas exporter implements a $95-billion public spending plan by 2016, spearheaded by its preparation for hosting the 2022 soccer World Cup.
The purchase of a $3 billion stake in Siemens, Germany’s most valuable company, by a Qatari state-backed entity this month, reflects a broader trend in the region to step up infrastructure development, analysts say.
“I see this as part of a broader strategic alliance between Gulf funds and Western companies and not only a liquidity and financial speculation story,” said Efraim Chalamish, a sovereign wealth fund expert and fellow at New York University.
“This is a reflection of a strong interest (by wealth funds) in investing in (their) local markets, in addition to diversification abroad,” he said.
Gulf states including Abu Dhabi and Saudi Arabia have handed contracts to German engineering firms in recent years to help develop domestic infrastructure such as railways and airports, as well as to take advantage of German technological know-how and bring it to the region, Chalamish said.
Qatar has gone a step further by taking stakes in such companies.
The purchase of an interest in Siemens follows its investment in Germany’s largest builder Hochtief, which it increased last year to more than 10 percent.
Hochtief is primed for a large chunk of Qatar’s infrastructure building ahead of the World Cup, including the country’s flagship property development, Lusail, a 38 square kilometre city that will eventually house 200,000 people. Hochtief will also build Lusail’s rail network.
COMMODITY WEALTH RECYCLED
With its investment in Royal Dutch Shell, announced this month, Qatar is buying into the Gulf state’s biggest foreign investor. The Anglo-Dutch oil company has $ 2 1 billion invested in the country, including a $19 billion gas to liquids plant, called Pearl, a joint venture with the Qatar government that went into operation last year.
The joint venture, located in Qatar’s industrial city of Ras Laffan, will process about three billion barrels-of-oil-equivalent over its lifetime from the huge North Field in the Gulf, the source of Qatar’s massive gas reserves.
Investing in Shell marries the twin objective of ploughing petrodollars back into the energy sector, and developing infrastructure.
“(The Shell stake) makes a lot of sense, for both sides. With oil prices where they are now, Pearl is generating a lot of cash for Qatar, probably in the neighbourhood of $10 billion per year. It is a major contributor to Qatar’s balance sheet, and it highlights the mutually reinforcing nature of the relationship,” said Alex Forbes, an energy consultant based in London.
“Qatar is very important to Shell, and Shell is very important to Qatar.”
The Qatar sovereign wealth fund’s investment in Shell, which sources say could be up to a 3 percent stake, follows its build-up in recent months of a 3 percent stake in Shell’s French rival Total.
Investing in oil companies marks a diversification of sorts for the fund, whose portfolio is already replete with banking and property stakes, including Credit Suisse, Barclays, Agricultural Bank of China and Santander Brasil.
The sovereign fund, whose assets top $100 billion, executive board member Hussain al-Abdulla said in April, is also eyeing a stake in Italy’s Eni oil group, according to media reports.
In addition, the fund has “trophy” holdings such as London’s famed Harrods department store, and investments in German carmakers Porsche and Volkswagen.
“I believe this spree into energy is part and parcel of a broader diversification strategy. After investing heavily in a range of sectors, they are turning to energy also. They have always liked real assets such as gold, metals, agriculture and land,” said Rachel Ziemba, director at Roubini Global Economics based in London.
“I don’t think this means they will shun other sectors, just that they are narrowing out some overweights, and continue to invest in areas supportive of domestic development.”
BACK DOOR TO GLENCORE
Qatar’s wealth fund has also been quietly building up its stake in Anglo-Swiss miner Xstrata, which could now give it a back door entry to Glencore, the world’s largest commodity trader.
Glencore plans to merge with Xstrata, and Qatar’s 8.7 percent stake in Xstrata is seen paving the way for a deal, which is opposed by some of Xstrata’s shareholders.
A senior executive of Qatar’s secretive sovereign fund gave a rare insight into its thinking when he said last month that the financial crisis had restricted investment in commodities and that he expected a supply-demand gap to emerge by 2016 or 2017.
“We like commodities; we like to invest in commodities. Since 2002, the commodity price trend keeps going up,” Qatar Investment Authority executive board member Hussain al-Abdulla told reporters.
Qatar surprised many observers by passing on commodities trader Glencore’s initial public offering last year as rival Abu Dhabi fund Aabar bought into the flotation.
Gold presents an especially tempting target, those close to the fund say, though Qatar has moved cautiously in that direction.
A unit of Qatar’s fund last October agreed to provide a $600 million project financing loan to European Goldfields – its first ever investment in a gold miner – though it has yet to purchase an outright stake, despite strong expectations it would.
“Gold is still a big draw for them. They’re still looking at that sector. They want manufacturing hard-type assets such as factories, not so much the financials,” said a Doha-based advisor to the fund.