Thursday, September 20, 2007

Gulf States Counter M&A Slowdown With $25 Billion of Takeovers

This should be really no surprise. What else ( except gold ) should they buy with the depreciating $......This trend is going to be a support for the equity market for years to come and with the recent central bank action the appetite for bonds should be "subpar"......

Das sollte wirklich keinen überraschen. Was sollen die auch anderes (ausser Gold) mit Ihren täglich verfallenden $ kaufen...... Dieser Trend wird sicher noch auf Jahre hinaus eine wichtige Unterstützung für die weltweiten Aktienmärkte spielen. Und nach den letzten Aktionen der Notenbanken rund um den Globus dürfte das Vertrauen in Bonds generell gelitten haben......

Key will be to identify the markets which will benefit the most. And i doubt that US$ assets will be a winning bet.....

Entscheidend wird wohl sein die Märkte zu identifizieren die am meisten von diesen gewaltigen Geldströmen profitieren werden. Und ich nicht davon aus das der Dollarraum zu den Gewinnern zählen wird.

via Brad Setzer

Norway has long held only about 35% of its oil revenue in dollars, Russia now has less than 50% of its reserves in dollars and a few Gulf states have also rather clearly trying to reduce the dollar’s share of their (growing) portfolios. In 2000, for example, as much as 85% of the Kuwaiti investment authority’s assets may have been in dollars. That total is now probably under 50% (KIA’s equity portfolio is certainly under 50%). ADIA reportedly shifted toward emerging economies a few years ago. And a host of Gulf funds now want to invest in emerging Asia …

In his now classic paper on the oil-exporting economies, Ramin Toloui of PIMCO calculates that if oil exporting economies invest 60% or more of their rising revenues in dollar assets, an increase in the price of oil is dollar positive (see figure 14). And if they invest less than 60% in dollar assets, a rise in the price of oil is dollar negative.


The news that pushed the dollar lower on Thursday came from Saudi Arabia, where the central bank, which has pegged its currency to the dollar, decided not to follow the Fed by cutting by 50 basis points. That prompted speculation that the Saudis no longer want to peg to a currency in freefall.

Further, a long-term link between the dollar and the oil price has broken down. A high oil price used to mean a strong dollar as oil exporters put their money in dollars. But now we have record crude prices and the weakest dollar in decades.

The biggest risk is probably that there is some kind of protectionism going on to block state owned (also from China etc) in general. The discussion is already heating up in Europe (except in the UK).

Das größte Risiko ist wohl darin zu sehen das immer mehr Regierungen generell überlegen wie solche Deals die von staatlich geführten Fonds unternommen werden verhindert werden können. Der Trend zur Abschottung ist sowohl in Europa ( Ausnahme UK) als auch in den USA nicht zu übersehen.

Gulf Counters M&A Slowdown With $25 Billion of Deals
Sept. 21 (Bloomberg) -- The Persian Gulf states, flush with cash from burgeoning oil revenues, are buying overseas assets at a record rate and countering the paucity of acquisitions hampered by the summer's surge in corporate borrowing costs.

Abu Dhabi agreed yesterday to pay $1.35 billion for 7.5 percent of Carlyle Group, the world's second-biggest private equity firm. Dubai and Qatar took competing stakes in Nasdaq Stock Market Inc., London Stock Exchange Group Plc and Nordic bourse OMX AB. Qatar also won approval to examine the financial records of J Sainsbury Plc, the second-largest U.K. supermarket chain.

All told, the deals are worth $25 billion, according to data compiled by Bloomberg. The pace of international investments by Gulf states, which earn $1.2 billion a day from oil exports, is quickening as they seek to diversify beyond energy. The nations have already spent a record $68 billion on overseas acquisitions this year, the Bloomberg data show.
``They are not just putting their money in bank deposits and government bonds any more,'' said Eckart Woertz, chief economist for the Gulf Research Center in Dubai. ``They are after strategic assets.''

The record pace of global mergers fell in August to the slowest in two years as rising costs for credit eroded investor confidence. The three-month dollar London interbank offered rate, a lending benchmark, rose to 5.73 percent on Sept. 7 from 5.36 percent at the end of July. The rate fell to 5.21 percent yesterday after the Federal Reserve reduced interest rates for the first time in four years earlier this week.

Slowest Month
About $188 billion of deals was announced last month, the lowest amount since July 2005, according to data compiled by Bloomberg. The value of deals dropped after losses in subprime mortgage bonds contaminated debt markets, prompting a sudden increase in corporate borrowing costs and a slide in stocks.

Not in the Persian Gulf. The pace of takeovers may accelerate as oil trades at a record high and Dubai and Qatar race to lure international banks, asset managers and brokerages. Oil reached a record $83.90 a barrel in New York yesterday.

Based on the share prices of LSE, Nasdaq, OMX and Sainsbury on Sept. 19, Dubai's investment would be $2.5 billion and Qatar's would be $21.5 billion. ....

``Qatar is a clone of Dubai,'' said Haissam Arabi, a Dubai- based managing director of asset management for Shuaa Capital PSC. ``They have taken their lead from Dubai on most fronts. Dubai had Emirates airline, then Qatar set up Qatar Airways. Dubai established itself as a tourist destination, and then Qatar tried to position itself as such. And now as financial centers, Dubai moved and Qatar followed.''

Dubai and Qatar are overshadowing Bahrain's traditional position as the Persian Gulf's financial hub. Dubai is the second-biggest sheikhdom in the United Arab Emirates after Abu Dhabi. The six Gulf Cooperation Council states are the U.A.E., Bahrain, Kuwait, Qatar, Oman and Saudi Arabia.

Mubadala Development Co., an investment company owned by the government of Abu Dhabi, will buy a 7.5 percent non-voting stake in Carlyle.

Sainsbury, based in London, yesterday softened its opposition to a takeover bid by Qatar after the emirate said it would borrow less to fund the deal.

Cooperative Takeovers
The Gulf states sometimes cooperate on acquisitions. Sheikh Hamad bin Jassim bin Jaber al-Thani, the Qatar Investment Authority's CEO and since April Qatar's Prime Minister, said in February the country may buy as much as 10 percent of Airbus SAS parent European Aeronautic, Defence & Space Co. because the shares are undervalued.

When Dubai International Capital LLC bought 3.12 percent of EADS in July, some of its money came from Qatar, according to Chief Executive Officer Sameer al-Ansari.

Blocked Ports
Dubai generated 3 percent of its gross domestic product from oil last year and has a population of about 1.5 million. As oil wells run dry, the emirate is building the world's tallest tower, offshore islands in the shape of palm trees, and a leisure park three times the size of Manhattan.

It's also earmarked more than $82 billion for investment in aviation, including construction of the world's biggest airport.

The Gulf's overseas acquisitions haven't always succeeded. Qatar in December lost out to a group led by Macquarie Bank Ltd. in its bid to buy Thames Water Utilities.

Dubai-owned container port operator DP World last year agreed to buy London-based Peninsular & Oriental Steam Navigation Co. for $6.8 billion, only to be forced to sell P&O's U.S. port assets under pressure from lawmakers who threatened to block the takeover on the grounds of security.

New York Democrat Senator Charles Schumer said yesterday a deal that makes Borse Dubai the biggest shareholder in Nasdaq requires scrutiny.

``There are serious issues that need to be investigated,'' he said at a press conference in Washington. ``Questions must be asked and answered before the deal goes forward.''
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Anonymous Anonymous said...

And i doubt that US$ assets will be a winning bet.....

I think US companies could be targets, especially if stock prices fall. Assuming such takeovers are allowed; there will definitely be opposition, as there was when the Japanese began buy US assets on a large scale back in the 1980s.


2:01 AM  
Blogger jmf said...

Moin Eh,

i agree. But i think others parts of the world will benefit more.

The question will be if the US has the option to reject any bids further down the road.

Every attempt that will fail will give the sovereign wealth funds less incentives to hold $....

And i suspect that the bond purchases will suffer also...

Eh, i hope you get your Berlin paycheck in €......

I have met 2 guys at a pub from the US that are making an education at the Husum located wind turbine maker Repower ( sold after a take over battle with the French to the Indian company Suzlon).

Looks like a very good career decision. When they have finished in 6 month they will have a very safe job in the US for decades to come....

They were complaining how expensive (thanks to the $) the life has become.

They really didn´t notice until they have left the US what piece of junk the Greenback has become...

2:44 AM  
Anonymous Anonymous said...

It just works out that way -- reiner Zufall:

Kohn disputes notion of Greenspan or Bernanke 'put'- No. 2 Fed official says central bank always takes a big-picture view


5:59 AM  

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