REUTERS SUMMIT-Gulf firms look to emerging markets for growth
(For other news from Reuters Middle East Investment Summit, click here)
* Banks, telcos among companies outgrowing home markets
* Gulf firms have competitive advantage in some nations
* North Africa a major focus since Arab Spring
* Asia expected to follow
* Gulf's bond investors moving beyond comfort zone
* Bond investors build on business, cultural ties abroad
By Dinesh Nair and Rachna Uppal
DUBAI, Nov 22 (Reuters) - Gulf firms and state-backed investors, flush with petrodollars and facing limited growth options at home, are stepping into emerging markets in Africa and Asia to get a foothold in key sectors such as banking and telecommunications.
Investors from the Gulf have for years put their oil wealth into developed markets in the United States, Europe and Japan. The consistent focus on less developed countries is new, and may have big implications for the economies receiving the money.
Emirates NBD, Dubai's largest bank, is one example of the trend; it is looking at potential acquisitions in areas including Africa, Chief Executive Rick Pudner told the Reuters Middle East Investment Summit this week.
"If you can find something that isn't betting the bank on but is a good opportunity to take advantage of weaker asset prices in the region, then you need to look at it," Pudner said.
Data from the Arab Investment and Export Credit Guarantee Corp show the start of the trend. Foreign direct investment outflows from Arab countries, the vast majority from the Gulf, rose 24 percent to $24.6 billion last year; FDI outflows from all nations in the world climbed 17 percent, to $1.69 trillion.
The rise in Arab FDI was striking because it occurred during the Middle East's Arab Spring uprisings, which might have been expected to stifle outflows by making most firms risk-averse.
Two major motives are behind the Gulf's investment push into emerging markets.
One is the fact that Gulf companies are outgrowing their home markets and are being forced to go abroad to continue expanding. Qatar, for example, has nearly 20 banks catering to a population of only around 1 million.
Qatar National Bank (QNB), the Gulf state's flagship lender with a market value of over $25 billion, is in the advanced stages of negotiations to buy the Egyptian arm of Societe Generale .
State-owned Qatar Telecom agreed in June to double its stake in Iraq's No. 2 mobile telephone operator Asiacell to 60 percent for $1.47 billion. It may bid for a stake in Maroc Telecom, after France's Vivendi's said last month it had received four expressions of interest for the potential sale of its 53-percent stake in the Moroccan firm.
The other motive is more positive: Gulf companies think their skills and backgrounds give them a competitive advantage in pursuing some emerging market opportunities.
One area which they plan to dominate is Islamic banking, which is expected to take off in North Africa after last year's overthrow of authoritarian regimes there.
"We're seeing great interest from Gulf and regional banks wanting to enter the Libyan market, mainly those operating according to Islamic sharia," said Jamal Abdelmalek, chairman of Libya's Bank of Commerce and Development.
Countries such as Sudan, plagued by wars, poverty and a decade-long conflict with South Sudan, are forbidding to Western investors but look more accessible from the Gulf because of cultural and political ties.
Investors in Bank of Khartoum, mostly owned by Gulf banks including Dubai Islamic Bank, Sharjah Islamic Bank and Abu Dhabi Islamic Bank, plan to boost its capital, Bank of Khartoum's General Manager Fadi Faqih said.
He told the Reuters Summit that capital would rise within two years to 1 billion Sudanese pounds ($225 million according to the official exchange rate) from 300 million pounds, allowing the bank to expand its financing of agricultural and mineral projects in the country.
Pudner at Emirates NBD said Dubai's position as a financial and trading hub linking several major groups of emerging markets made it logical for the bank to consider investment in those markets.
"Our longer-term strategy is to use Dubai's growing influence in terms of location to facilitate trade and capital flows between Africa, the Middle East and Asia... We think that Dubai is ideally positioned to link those flows together."
Gulf firms have been slower to move into Asia than Africa, but many bankers think an Asian push is inevitable and may begin soon. In February last year, QNB completed the acquisition of a majority stake in Indonesia-based Bank Kesawan.
With oil prices high, the Gulf has more money to invest abroad than it can spend on corporate acquisitions and investments, so some of its cash is starting to move into emerging market bonds.
Traditionally, the Gulf's bond investors have focused on their own region. But in September, Gulf investors bought nearly 60 percent of Turkey's first issue of a sovereign Islamic bond, which totalled $1.5 billion in size.
This was seen as a sign that Gulf funds were willing to leave their comfort zone, and could be followed by Gulf investment in bond issues planned by North African states seeking to repair their state finances after the Arab Spring.
"Gulf investors are already looking at North African opportunities, with existing relationships strengthened further by the funding that is being provided by Gulf sovereigns to their neighbours post-Arab Spring," said Dilawer Farazi, portfolio manager at Invest AD in Abu Dhabi.
Morocco is considering a possible dollar-denominated bond issue in coming days and plans to launch its investor meetings in Abu Dhabi on Thursday this week. "It's where the money is," a regional banker said.
Follow Reuters Summits on Twitter @Reuters_Summits (Additional reporting by David French and Mirna Sleiman; Editing by Andrew Torchia and Tom Pfeiffer)
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