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Tue 20 Sep 2011 02:45 PM

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Wealthy Qatar risks a foreign investment pile-up

Gulf state's taste for foreign trophy assets could be dangerous, warns Una Galani

Wealthy Qatar risks a foreign investment pile-up
Qatars foreign assets include luxury London store Harrods and stakes in Barclays and J. Sainsburys

Qatar risks a foreign investment pile-up. The tiny gas-rich state might have up to $100bn to snap up overseas assets, based on guesses at the size of the country’s main sovereign wealth fund.

Qatar’s mooted interest in a 7.5-per-cent stake in European aerospace and defence company EADS would only cost it less than $2bn at current market prices.

But it’s unclear if the country’s overseas spending is as focused as its domestic ambitions. And its taste for large high-profile assets could be dangerous.

The soon-to-be richest country in the world – on a GDP per capita basis – is able to splash its cash overseas, given the stability of its domestic politics. The Qatar Investment Authority holds an estimated $60bn to $100bn in assets.

On top of that, the country reckons its foreign reserves for the year will total around $20bn. But that pales in size in absolute terms against the sovereign funds of Abu Dhabi and China, which are each several times bigger.

Assuming estimates of the QIA’s size are about right, at least 20 percent of Qatar’s assets are spread across a handful of purchases made over the last two years alone. Qatar has spent more than $20bn on stakes in German car makers Porsche and Volkswagen – which have just run into trouble – Agricultural Bank of China, Santander Brasil, Spain’s Iberdrola and construction firm Hochtief.

It has also thrown a lifeline to some Greek banks and snapped up Britain’s luxury department store Harrods, not to mention two European football teams.

The attraction is easy to understand: valuations are low. Airbus, a unit of EADS, forecasts it will sell $3.5-trillion worth of aircraft between 2011 and 2030.

The parent has a market capitalisation of barely $25bn. Doha bets that its deep links with sophisticated and politically significant entities will help further its gas ambitions. It also hopes that the relationships will assist its longer-term economic diversification by encouraging its targets to set up local operations. In any case, the purchases boost Qatar’s international profile.

Yet Qatar’s strutting of the world stage would seem more savvy if the QIA was half as transparent about its strategy for managing its existing wealth as it is for domestic development, laid out in its 2011-16 vision.

Abu Dhabi, China and Norway all provide some kind of breakdown of spending. As it stands, Qatar’s investments so far look like a large concentration of risk.

(Una Galani is a Reuters Breakingviews columnist. The opinions expressed are her own.)

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joe 8 years ago

Qatar is a tiny country which has no capacity to make them spend more in the local economy. they have no choice but to buy foreign assets.

Saudi Engineer 8 years ago

I think the issue being discussed is not whether or not they should buy foreign assets, but *what kind* of assets they should be investing in.
Buying a football team has never been a "good investment" so much as a toy for a big boy. A "poor" man may buy an Iphone, while a rich man may buy a Porsche - a filthy rich man (or entity) may buy a football team. In the end most of those are not sound long-term investments.
As for spending upwards of $20 bn on a hand full of investments if their total Cap is about $100 bn, that may also not be good investing. A wise economics teacher in high school used to always tell us "don't put all your eggs in one basket".

Telcoguy 8 years ago

There are plenty of available assets in the UAE. They do not seem to be so active here.

Telcoguy 8 years ago

True, diversification is an important aspect. But having too small shares to get any effective control is also not such a good strategy:
-If you are making purely financial investments I would agree with you the more diversified the better. You could get either smallish shares in the largest firms or larger, even control, in smaller firms.
-But if you want to be an active investor in a global player, you need to put some skin on the game, there is no other way you will get a seat on the board of any large corporation.
On your "vanity investments" point, I fully agree, this region has wasted huge amount of wealth on both, vanity projects, and poorly thought empire building initiatives that have now run out of steam.
BTW I am not saying that being an active investor is better than being a purely financial investor, or even speculating on the reasons the QIA may have. Some people may believe that the choice of targets is driven to some point by the wish to be seen as a "player".
Cheers