There can be absolutely no doubt about the extent of Qatar’s heavy investment abroad in recent years, writes Deirdre Hipwell.
Since 2004 the gas-rich Gulf state has invested more than £40bn in Britain alone, in assets ranging from the Shard and Harrods to a stake in Heathrow Airport. It also has extensive public holdings in a host of listed companies worldwide including Royal Dutch Shell, Rosneft, and Volkswagen, as well as the Agricultural Bank of China, Accor in France, and Iberdrola in Spain.
Earlier this year, Qatar announced large-scale investment programmes in the UK and US. It promised to invest £5bn in Britain over the next five years in a demonstration of its commitment to the UK economy in the wake of Brexit. It also said it planned to open an office in Silicon Valley in the US to increase its exposure to the so-called “knowledge economy”. The Qatar Investment Authority (QIA), the nation’s sovereign wealth fund, has already committed 60% of a planned $35bn investment in the US and announced another $10bn of funding at the end of last year. Sheikh Abdullah bin Mohammed bin Saud Al Thani, chief executive of the QIA, has said that new investments by the fund would focus on energy, infrastructure, healthcare and IT services, and said he was facing pressure from his board to diversify in terms of geography and asset class.
For some time Qatar’s growing investment ambitions abroad have been regarded as necessary to both diversify its economy and reduce its reliance on oil and gas at a time when energy prices have been falling. Qatar has also wanted to build deep trade partnerships with countries that can provide the nation, which is roughly the same size as Yorkshire, with essential services and imports.
Diplomatic ties
However, on 5 June this year, seven countries, including Saudi Arabia, Egypt and the United Arab Emirates (UAE), severed their diplomatic ties with Qatar closing all air, land and sea borders with the tiny peninsular state. The move came after Qatar’s Gulf neighbours accused Doha of supporting Islamist terrorist groups, mostly those linked to the Muslim Brotherhood, and having links with Iran, Saudi Arabia’s rival.
The dramatic blockade could not only have long-lasting and far-reaching consequences geopolitically, it could also potentially result in a seismic change to the way that the Qatar sovereign wealth fund and Qatari companies invest abroad. It may also force many countries and companies to reconsider the implications of doing business with Qatar and could result in a significant lessening of investment from the gulf state.
Omar Saif Ghobash, the United Arab Emirates ambassador to Russia and a pre-eminent authority on this crisis, has already said that he believes many countries, including Britain, could be forced to decide whether to have dealings with Qatar or the Gulf state’s neighbours. During an interview with The Times in London earlier this year he claimed: “You’d be forced to choose between wanting to do business with an extremist agenda or wanting to do business with people who are interested in building an acceptable Middle East. Investments that Qatar are making produce returns in your country that go to groups in Libya, in Iraq, In Syria.”
This burgeoning Middle East crisis is not only a challenge for politicians to manage, it is an equally complex conundrum for global markets and financial institutions. Some of the world’s largest banks have lent billions to Qatar to help fund its building boom, from roads to gas pipelines as well as sports facilities linked to its controversial hosting of the FIFA World Cup in 2022. Many top Qatari banks have also increasingly sought external funding, particularly from European banks, in recent years as the oil price started to falter and income from oil began to reduce.
Unlikely to default
According to the Bank for International Settlements, the UK financial sector alone has extended about $14bn in loans to Qatari businesses – both private and state-owned – which is more than any other country. Qatar is unlikely to default on its loans, after all this is a state that has about $35bn of foreign reserves, but Standard & Poor’s has downgraded the country’s credit rating and said that the crisis would “exacerbate Qatar’s external vulnerabilities”. This potentially means Qatar could need to access more short-term bank loans at a time when energy prices remain volatile.
Moody’s, another credit rating agency, also changed its outlook to ‘negative’ from ‘stable’ due to the continued pressures facing Qatari banks. Moody’s said that Qatar’s financial systems were faced with weaker operating conditions and said that a prolonged regional dispute could trigger a possible funding crisis as foreign investors pulled money out of the country. Nitish Bhojnagarwala, vice-president at Moody’s, said: “Qatari banks’ reliance on confidence-sensitive external funding has increased in recent years due to a significant decline in oil-related revenues. This leaves them vulnerable to shifts in investor sentiment.”
It is clear that Qatar’s economy has taken a sharp hit. Official trade data from Qatar showed that its imports slumped 40% in June, compared to the same period the year before, as the blockade took hold. While this may have eased slightly, the steep reduction revealed the risk to Qatar’s economy and it is not clear yet whether the country will bounce back or is about to embark on a slower period of growth. There is already speculation that the state might be forced to liquidate some of its overseas assets, which could include selling stakes in companies and infrastructure assets across the globe, to help alleviate funding pressures. It is also likely that the state will be much more cautious about new investments abroad.
It is well known that Qatar’s balance sheet is very strong, but there have been some questions about the extent to which the reserves are liquid.”
William Jackson, senior emerging markets economist at Capital Economics, said: “I guess one way this could play out is that there will be demand from Qatari residents to move some of their money abroad in an increasingly uncertain political situation. At the moment it is still not clear if this situation will ease or ramp up even more, so it is plausible that there will be more money coming out from the private sector.
“However, the crisis [for the Qatar state] may have reinforced the need for more liquid foreign assets. It is well known that Qatar’s balance sheet is very strong, but there have been some questions about the extent to which the reserves are liquid. A lot [of assets] are owned by the government wealth fund and can’t be liquidated easily, whereas treasury bills held by the central bank can be liquidated immediately. I think it is likely you may see less investment [abroad, including the UK] from the Qatar state.”
Stopping outflows of cash from Qatar could have a particularly dramatic impact for Britain. According to Dealogic, the Qatar state or Qatari companies have ploughed more than $40bn into Britain through takeovers of UK companies or acquisitions of assets since 2004. Qatar’s dealmaking has been picking up pace over the past decade too. In 2004 there was only one Qatari-led M&A deal, the state’s $189m acquisition of One America Square in London. However, Dealogic said by 2008, Qatari-led deal-making had peaked at nearly $15bn across eight deals. Qatar’s involvement in the UK property sector, in particular, has been significant. Data from CBRE shows that Qatari investors have spent nearly £7bn in property since 2006 with most of the investments taking place between 2010 and 2015.
Capital outflows
Yayha Abdulla, head of capital markets for EMEA at Cushman & Wakefield, said that he believed that Qatar’s high GDP per capita and the nation’s budget surplus meant it was likely that capital outflows could continue as usual. And political efforts are certainly being made to try to de-escalate tensions in the region and restore normal trading. However, feelings are running high. Only a few weeks ago Hamad Saif al-Shamsi, the UAE Attorney General, banned the publication of sympathetic remarks about Qatar on Twitter, or any other media platform, and threatened anyone that breached this diktat with a minimum fine of 500,000 dirham (£104,000) or a prison sentence of between three and 15 years.
Andrew Philbey, researcher at Dealogic Research, said Qatar was now facing an uphill battle to restore relations with its neighbours “even as it continues to acquire assets around the world”.
And Qatar is still trading where it can and investing, for now at least.
Only a few days after the blockade was announced, and after Donald Trump denounced Qatar as a leading sponsor of terrorism, the Pentagon signed a $12bn arms deal with Qatar. The state has also moved quickly to secure commodities by signing up new suppliers from Turkey, Greece, Oman and Kuwait among others. Qatar even imported livestock, such as dairy cows, to provide basic milk supplies (from the comfort of air-conditioned barns). The Qatari currency, the Riyal, which is pegged to the US dollar, has also managed to sustain heavy pressure since the sanctions were first announced.
In the UK, Harrods, which is owned by the Qatar Investment Authority, has just announced plans for a further raft of development in the famous store. The Qataris have already invested more than £250m in the 1m sq ft department store in Knightsbridge since 2010, while taking out more than £500m in dividends. Michael Ward, managing director of Harrods, said the new investment programme would cost a “lot of money” and take at least four years, and said he was not concerned about the impact of long-term sanctions on Qatar: “We do frocks and lipsticks, we don’t do politics.”
Deirdre Hipwell is mergers & acquisitions correspondent, The Times
‘We must wait and see what impact this stand-off will have’
Recent developments across the Gulf Co-operation Council have added to the volatility that has become background noise associated with the region, writes Yahya Abdulla, head of Middle East, Capital Markets, Cushman & Wakefield.. While the world’s media and politicians have flocked to give their views and interpretations of the stand-off, the exact impact of the crisis will only become apparent in the months ahead.
The onset of lower hydrocarbon prices had already caused many regional governments to cut costs domestically, fast-track industry consolidation and implement economic policies more akin to other global countries. These include introducing various indirect taxes and reducing subsidies for petrol to name but two. In theory, the lower oil prices had forcefully improved the fiscal efficiency of many of the GCC nations, thus making them less vulnerable to further economic shocks.
Focusing on Doha and the associated impact on capital outflows, we must not lose sight of the fact that Qatar is a country which is 31 times smaller than Germany, with a population of around 400,000 Qataris. Needless to say, the ultra-high GDP per capita coupled with a steady budget surplus over the years should, at least economically, suggest “business as usual” in terms of capital outflows.
Qatar Investment Authority, the country’s sovereign wealth fund, has built a significant and strategic global portfolio since its inception in 2005 and has quickly become one of the largest owners of global real estate in the world. With a mission to invest, manage and grow Qatar’s reserves to create long-term value for the State and future generations, the QIA should be considered an investor with horizons beyond political uncertainties, be they global or local to the Middle East.
