Middle East: Listing scheme heralds shift at Qatar Holding

By:
Dominic O’Neill
Published on:

New fund to spread wealth locally; effort to boost local bourse.

Given the glamour of Qatar’s recent foreign purchases, it is little wonder the state’s rulers are keen to be seen to be spreading wealth at home too.

In April, a group of Sardinian resorts favoured by billionaires became Qatar Holding’s latest purchase. This was only days after the government-controlled fund snapped up a hotel in London’s Mayfair for £400 million ($612 million).

Over the past year, Qatari investors have bought Greek islands, luxury hotels in Paris and more – not to mention Qatar Holding’s earlier purchases of German sports car firm Porsche, and Harrods (the upscale London department store).

 
 Sardinia's Costa Smeralda: site of another of Qatar Holding's European purchases

This month a new QR45 billion ($12.4 billion) fund backed by Qatar Holding will open for public subscription by ordinary Qatari citizens, according to the Qatar Exchange. At some point, international investors will be able to buy in too.

Subsequent to a local Qatar Holding press conference, reports suggested the new fund would pay a guaranteed 5% dividend in its first year. Reports suggested Qatar Holding could transfer assets into the fund at a 15% discount.

In comments published on Qatar Holding’s website, CEO Ahmad Al Sayed said the newly named Doha Global Investment Company would give Qataris “the opportunity to enjoy the access and deal flow that Qatar Holding has”.

By late April, the firm had yet to release an IPO prospectus or even name a CEO. Credit Suisse, which is 6%-owned by Qatar, is known to be advising on the listing. Local broker Masraf Al Rayan will likely play a prime role distributing shares.

Other details released so far suggest that Qatar Holding will inject an initial QR12.6 billion, topped up by QR9.1 billon from local institutions and QR1.8 billion from retail, assuming commensurate demand. A further QR22.5 billion will be raised later.

The announcements alone underline a growing need to demonstrate local benefits from an opaque and sometimes random-seeming foreign investment approach in what has become Qatar’s most prominent state petrodollar fund.

In addition, there are calls for greater transparency from the jurisdictions where Qatar Holding invests. Holders of Qatar’s $21.4 billion sovereign Eurobonds have similar questions on how acquisitions are chosen and financed.

Qatar Holding’s tiny group of investment professionals – five “at best”, says a banker close to the fund – has made possible freedom from bureaucracy and faster decision-making than at other Gulf funds, despite assets of $100 billion or more.

One banker compares Qatar Holding’s potential success in this to the diversified investment strategy that made billionaires such as Warren Buffett and Albert Frère.

However, even in Qatar – the world’s richest country by per capita income – this is theoretically state money, so Qatar Holding could still feel more pressure for public accountability compared with private-sector individuals.

Now, bankers say, if Qatar Holding transfers strategic shareholdings into the new fund (as has been discussed), it would necessitate further disclosure on the terms of previous buyouts and how they fitted into the state’s overarching vision.

Knowledge of the need for greater transparency could then create new discipline in evaluating future buyouts, says one banker – at least, decisions would have to be more a result of financial and strategic planning, rather than individual whim.

Qatar Holding, reckons the source, will inevitably grow as an institution: putting professionals in charge of certain sectors, for example, and creating financial control and legal posts. The new fund could make this happen sooner.

At the moment, Qatar Investment Authority carries out legal and financial management functions on behalf of Qatar Holding. If this changed, Qatar Holding could be even more independent from QIA, says the source.

QIA carved out Qatar Holding in 2006 as a vehicle for buying strategic stakes in listed and unlisted firms. QIA itself was formed only in 2005. QIA is much younger than endowment-like funds such as the Abu Dhabi Investment Authority or the Kuwait Investment Authority because liquefied natural gas exports have made Qatar wealthy relatively recently.

The new listed fund could be the authorities’ way of dealing with such problems. It might not be ideal: a Bloomberg report says the fund will focus on distressed assets, which might be even more likely to lead to losses for retail investors.

Giving away plots of land or concessionary loans might be safer. Yet this is not the first time Qatar or other Gulf states have used discounted IPOs to assuage popular grumbling.

Furthermore, as Qatar seeks to promote its status as an international financial centre, this will be one of the biggest ever listings in the Gulf, with the hope of boosting the local stock index, which has remained roughly flat since 2010.

“There’s a lot of liquidity at individual and institutional level in Qatar,” says Khalid Al-Subeai, CEO of local investment bank The First Investor. “They will be keen to place their money in these IPOs.”

Indeed, says a source, local institutions and individuals will be protected from loss if the state is ready to cover any declines in value – as happened in 2009, when QIA effectively wiped out banks’ unrealized losses in local equities and real estate.