Analysis: Qatar demands respect with muscular Xstrata strategy

DUBAI Thu Sep 6, 2012 9:34am EDT

Swiss commodities trader Glencore's logo is seen in front of its headquarters in Baar, near Zurich, February 6, 2012. REUTERS/Romina Amato

Swiss commodities trader Glencore's logo is seen in front of its headquarters in Baar, near Zurich, February 6, 2012.

Credit: Reuters/Romina Amato

DUBAI (Reuters) - By holding out against Glencore's (GLEN.L) bid for mining giant Xstrata XTA.L, Qatar is not just gunning for more profit from its stake, but showing Western financiers it won't be pushed around.

With a sovereign wealth fund analysts estimate at about $100 billion, the rich Gulf state has bought assets around the world over the past several years, including sizeable stakes in European banks, football clubs and luxury car makers.

But liberal spending threatens to create an image of Qatar as an extravagant investor that buys trophy assets mainly for the prestige, which could hurt its ability to negotiate attractive deals.

By taking a hard line on the value of its 12 percent stake in Xstrata, and potentially blocking the firm's $30 billion merger with commodity trader Glencore, Qatar is signaling to the investment community that it is not a soft touch, bankers and analysts said.

This motivation suggests Qatar is unlikely to bow to last-minute pressure to accept a compromise price, as the hours tick away before Friday's vote by Xstrata shareholders on the bid.

"With the Glencore/Xstrata transaction, Qatar has shown that it can also block mega-mergers, along with grabbing trophy assets," said Rachel Zeimba, senior analyst and sovereign wealth fund expert at Roubini Global Economics in London.

"This is part of the evolution of the fund as a global investor to reckon with."

DETERMINED

Qatar Holding, the investment arm of the sovereign wealth fund, said last week that it was "determined" to vote against Glencore's current all-share offer.

The Qataris left the door open for a deal by saying they backed the tie-up in principle, but they reiterated that they would vote it down unless the terms were improved.

Previously, Qatar had demanded that Glencore's offer of 2.8 of its shares for each Xstrata share be raised to 3.25.

The Xstrata case may be the first time that a Gulf sovereign fund has publicly called for more value in a transaction, bankers said. Traditionally, Gulf funds have preferred to make their wishes known behind the scenes, in keeping with business practices in the region.

"From the point of view of Qatar Holding, the thinking is that you have to be careful when you are buying something from a trader and even more careful when you are selling something to a trader," a banker who has previously advised the Qatar fund told Reuters.

"At the end of the day (Glencore Chief Executive Ivan Glasenberg) is a trader, and is perceived to do a deal which squeezes out the opposite party. It looks like he has found his match in Qatar Holding this time."

The banker added that there was pleasure among Gulf sovereign wealth funds in general at the sight of an investor from the region standing up to a big Western dealmaker.

"For a change, it's good to see a Gulf investor calling the shots. You haven't seen such a firm stand being taken publicly before," he said. "These funds have lost a lot of money previously investing in European and U.S. companies."

PUNCHING ABOVE ITS WEIGHT

After making its point through the Xstrata deal, Qatar is not necessarily going to be taking such an activist stand in many future investments.

"We might see some instances where they get more active, but it actually takes a lot of time and energy to take up these roles. I don't think Qatar would want to be doing this on a normal basis," Zeimba said.

Others, however, see Qatar's assertiveness over Xstrata as very much of a piece with its desire to parlay its massive natural gas wealth into greater influence in economic, diplomatic and political spheres.

Qatar was a major supporter of Libya's rebels last year and is playing a prominent role in the Syrian crisis. It has promised billions of dollars of financial aid to Egypt and other countries affected by the Arab Spring revolts.

"Qatar has always been known to punch above its weight. They have demonstrated a willingness to do that in every aspect of their economic, social and political spectrum," said Khuram Maqsood, head of private equity at Saudi Arabia's Al Murjan International, and previously an executive at a Dubai-based sovereign wealth fund.

"In the investment sphere, the Glencore/Xstrata deal is another extension of this desire to play in the big leagues."

(Editing by Andrew Torchia and Will Waterman)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.