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from Breakingviews:
Temasek’s triple personality bodes well for returns
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Temasek is turning into a financial chimera. Where that mythical beast was part lion, goat and serpent, the Singaporean fund combines aspects of a hedge fund, private equity house and investment bank. That combination sounds good for returns, though it might not sit well with Temasek’s political ties.
First, consider Temasek’s recent opportunistic actions. It sold $2.5 billion of shares in two China banks on May 3, just weeks after buying $2.3 billion of shares in another. Temasek reportedly flipped China Construction Bank shares for 20 percent more than it paid last November - which in turn was 20 percent below where the shares were trading when it sold in the previous July.
The fund has also shown a taste for private-equity style financial engineering. Temasek is kingmaker in a proposed $7.2 billion takeover of Indonesia’s Bank Danamon by Singaporean bank DBS, which would leave the fund with 40 percent of the combined group. Last year’s exchangeable bond, convertible into part of Temasek’s 18 percent stake in Standard Chartered, reflected more cleverness than necessity.
Finally, there are shades of an investment bank. Temasek has hired big-hitting bankers like UBS finance director John Cryan, whose influence may explain the change of gear. So too may its investment-bank-like pay, which leans heavily on performance. Temasek even claws back past bonuses when the fund fails to meet its internal hurdle rate, as happened in 2010.
This combination could be just what’s needed. Temasek’s return to the finance ministry, its sole shareholder, was below 5 percent in 2010, its last reported period - compared with a 20-year average of 15 percent. Without healthy returns, it’s hard to justify the $155 billion fund’s existence. Singapore already has a bigger sovereign piggy bank in the form of foreign reserve fund GIC.
from Breakingviews:
Qatar plays merger-maker at Glencore-Xstrata
By Una Galani
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
Qatar is playing merger-maker for Glencore-Xstrata. The Gulf state’s sovereign wealth fund has already proved it can act as a successful arbitrageur in M&A situations. It hasn’t revealed its intentions for the 5.5 percent stake in Xstrata built in the two months since Glencore agreed to merge with the Anglo-Swiss miner in a $90 billion deal. But the bold $2.7 billion investment could be another win.
The fund’s track record in special situations has improved. Interventions in UK retailer Sainsbury and London Stock Exchange in 2007 both backfired. But when Qatar bought 10 percent of European Goldfields last year and offered the cash-strapped miner cheap financing in return for warrants over more of the company, its interest teased out a premium bid for the entire company - and a quick buck for Qatar. The emirate is also in the money on the Volkswagen shares purchased when the car group was trying to marry with Porsche in 2009.
Qatar is doubtless betting that Glencore will raise its offer for Xstrata. Institutions that hold at least 8 percent of Xstrata shares are holding out for more, and Qatar’s stake potentially gives these naysayers more leverage over Glencore to bump up the terms. The deal can be blocked by just 16 percent of Xstrata shareholders because Glencore can’t vote its own 34 stake when the deal is put to a scheme of arrangement. Qatari opposition would almost certainly kill the deal.
In reality, the situation is more probably nuanced. Qatar wouldn’t want to get a reputation for being difficult by voting down a deal. Equally, Glencore would doubtless be keen to get it on board as a supportive long-term investor.
Qatar may have paid an average price of 1,144 pence per share for its stake, based on the average price of Xstrata shares in the last two months. Xstrata shares currently trade at 1,098 pence. But if Glencore ups its proposed share exchange ratio only to 2.9 from the current 2.8, Qatar could be more than made whole at current share prices.
from Breakingviews:
Prestige and power fuel Qatar’s frantic shopping
By Una Galani
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
Investors searching for financial logic to Qatar’s raft of high profile foreign investments risk coming unstuck. Within recent weeks the tiny Gulf state’s sovereign fund has made moves on France’s Total, conglomerate Lagardere and luxury house LVMH. The Qataris’ rapidly expanding pick n’ mix portfolio has led bankers to compare the strategy to the one that led Dubai into crisis.
Unlike the debt-laden emirate, Qatar is investing at the bottom of the cycle and its cash is in search of a home. Hydrocarbons are forecast to generate revenue just shy of $100 billion in the 2012, according to a Reuters poll. The current account surplus is expected to hit 29 percent of GDP, or $54 billion. It’s not clear how much goes to the sovereign fund. But in a country with one of the highest GDP per capita in the world, the picture is one of plenty.
Qatar’s headline-grabbing punts are concentrated in western Europe. That, bankers say, reflects the top-down decision-making process of a still young sovereign fund where a small circle of individuals are focusing on a region they know well and in which they are welcome. Europe is the number one destination, both financial and touristic, for rich Arabs seeking to escape the hot sweltering summer months.
Aside from geography, the assets bear little in common. Some investments look opportunistic, like the bet in Barclays, others strategic like the recent move on European Goldfields. But it is hard to say what owning Harrods, live French domestic football rights, or shareholdings in floundering Greek banks bring to the state of Qatar beyond a sense of prestige and influence.
Tiny Qatar appears to want many conflicting things. To be seen as a reliable investor and energy partner, to be profitable as well as an influential regional power - alongside Saudi Arabia, Turkey and Egypt. Stakes in Europe’s big names - especially those that come with board seats - give Qatar direct access to key movers and policymakers. That might generate financial returns along the way but calling it a focused investment strategy would be overkill.
from Global Investing:
A scar on Bahrain’s financial marketplace
Bahrain's civil unrest -- which had a one-year anniversary this week -- has taken a toll on the local economy and left a deep scar on the Gulf state's aspiration to become an international financial hub.
A new paper from the Sovereign Wealth Fund Initiative, a research programme at Center for Emerging Market Enterprises (CEME) at the Fletcher School at Tufts University, examines how the political instability of 2011 is threatening Bahrain's efforts in the past 30 years to diversify its economy and develop the financial centre.
Asim Ali from University of Western Ontario and Shatha Al-Aswad, assistant vice president at State Street, argue in the paper that even before the revolt, Bahrain lagged in building the foundations of a truly international hub in the face of competition from Dubai and Qatar.
Unlike DIFC (Dubai International Financial Centre) and QFC (Qatar Financial Centre), Bahrain insists upon local labor; currently 70% of employees in its banking and financial services industry are Bahrainis. Bahrain’s reluctance to hire non-resident talent has made Dubai...an alternative for those investors looking for a centre with more flexible labor practices such as DIFC provide... The constraints – a lack of formalized institutional and regulatory structure, along with an ad hoc business environment, underdeveloped infrastructure, and under-supplied skilled workforce – have negatively affected its growth and potential to become the financial gateway in the Middle East.
Then came the crackdown of protesters.
Its ruling Al-Khalifa family unleashed a ferocious extra-judicial crackdown against the opposition. It appeared the standard axiom of Gulf ruling families – securing legitimacy and counter-acting political opposition through redistribution of oil wealth – was sorely insufficient to address citizens’ grievances. These led not only to international opprobrium of the Bahrain government but also made foreign businesses reconsider Bahrain as a financial center – with many foreign business shifting workers and operations to Dubai... Indeed, confidence in Bahrain as a financial hub took a major blow along with its image as a stable, tolerant and liberal state.
It remains to be seen what impact last year’s pro-democracy uprising will have on the state of Bahrain and its ambition as a regional financial gateway– especially at a time when Dubai (DIFC) and Qatar (QFC) remain serious contenders to become dominant financial centers in the Middle East.
Bahrain had shown perseverance and strength in building its financial center, but democracy efforts and human right violations were able to threaten the hard work of more than 30 years.
Bahrain's sovereign wealth fund Mumtalakat, which is leading the country's efforts to diversify its economy away from the hydrocarbon sector, suffered a series of ratings downgrades last year as a result of sovereign downgrades. Mumtalakat is rated triple-B.
from Breakingviews:
Is Hugo Chavez ahead of the investment curve?
By Martin Hutchinson The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Venezuelan President Hugo Chavez plans to move billions of dollars of cash reserves from developed to developing countries, according to media reports. This may reflect politics, or the need to keep creditors sweet. But given the budget and bank woes afflicting the United States and the European Union, Chavez may not be alone seeking alternatives.
Chavez doubtless would have reasons for such a decision beyond the scope of typical investors. Russia and Brazil are likely to be more sympathetic to his policies than the likes of Switzerland and Britain, where much of Venezuela's cash reserves currently sit. Some, notably China, also have lent the South American nation money and may be putting pressure on Chavez to relocate funds closer to where they can safeguard repayment.
This sort of portfolio management thinking won't necessarily suit the investing masses. While China's financial position is immensely strong, its banking system is less so. Lenders in the Middle Kingdom have ample liquidity but also are larded with potentially precarious property and transportation loans. Other nations in the BRIC clique have questionable financial positions and Russia's financial services sector looks overly risky, to boot.
But that shouldn't deter the redeployment of capital. The reasons behind the loss of Uncle Sam's AAA credit rating and the EU's debt crisis present potentially longer-term structural investment problems in those regions. American banks are still coming to grips with the mortgage crisis while European ones face large holdings of government debt. Economic growth in both areas is sluggish at best, giving further reason to consider portfolio diversification.
The interconnectedness of markets and economies makes it impossible to run far. Still, there are emerging markets, such as Malaysia, Taiwan and Chile, where the economic conditions and banking systems look relatively sound. Even some rich countries, including Canada, Australia and Singapore, seem more appealing given the current circumstances. Following the Chavez playbook is rarely a good idea, but in this case investors might be wise to take an asset transfer cue from him.
from MacroScope:
Sovereign wealth fund under discussion… in Rwanda
A number of African nations have established or are having debates about establishing sovereign wealth funds to manage their mainly resource-based wealth.
It may be surprising however to hear Rwanda -- an aid-dependent nation racked by the 1994 genocide -- is considering one. Its foreign minister Louise Mushikiwabo says a sovereign fund would help develop its economy and ease dependency on aid.
"We should not rely on someone else's money. It's about our own dignity. We're looking at every policy -- economic policy and foreign policy -- to make sure Rwanda stands on its feet. Technology is one sector we're looking at in Rwanda and how to use our own innovation," Mushikiwabo tells Reuters during her visit to our London office.
The landlocked nation has been also looking at the agricultural sector as well as methane gas, of which the country plans to become an exporter in the future.
Mushikiwabo says one plan under discussion is to create a fund that has a size of $2 per working population (Rwanda's total population is about 10 million). She adds that Rwanda is in close cooperation with Singapore -- which has one of the world's biggest sovereign wealth funds, sourced from its export windfall revenues -- in building human capacity and skills.
So what's the timeframe? Mushikiwabo says in the next 10 years, given the country's strategy to become a middle-income country economy by 2020.
from DealZone:
DealZone Daily
U.S. drugstore operator Walgreen is to buy rival Duane Reed for $618 million from private equity firm Oak Hill Capital Partners, giving the company the market lead in New York. The acquisition brings the company 257 new stores in the city and has prompted analysts to think that struggling chain Rite Aid might make an attractive target for Walgreen rival CVS Caremark as it looks to catch up.
Britain's Babcock International has increased a proposed offer to buy defence firm VT Group to as much as 1.29 billion pounds, but its advances have again been rejected.
For more Reuters deals stories, click here.
In other media:
Beijing's sovereign wealth fund, China Investment Corp, is investing $1.5 billion with three private equity secondary specialists - firms that buy positions in buyout funds from other investors - the FT reported. CIC will put $500 million with each of Lexington Partners, Goldman Sachs and Pantheon Ventures in special accounts that will be kept separate from the firms' main funds.
Leading shareholders in Telecom Italia are discussing among themselves the possibility of merging with Telefonica of Spain, the FT writes. The discussions are said to be informal and preliminary but involve Telecom Italia's three biggest Italian shareholders - Mediobanca, Intesa Sanpaolo and Generali.
Still feels like the same old, same old. Just buying up more real estate. http://tinyurl.com/yeokayf
from Breakingviews:
China’s sovereign fund may bet more on resources
China's sovereign wealth fund is to have its coffers restocked possibly with as much as $200 billion. This could end up being a further boost for the global commodities sector.
China Investment Corporation had $297 billion of assets at the end of 2008. Now its cash reserves need replenishing after a spending spree this year, according to people close to the fund. CIC invested as much overseas each month in 2009 as it did in all of 2008. Investments included a further $1.2 billion in Wall Street bank Morgan Stanley , and a spate of resources deals in Canada, Indonesia, and Mongolia.
The recent investment boom in resources has served CIC well, with global commodity prices jumping 39 percent this year. CIC's $1.5 billion investment in Canada's Teck Resources has appreciated more than 120 percent since July.
CIC's early investment success probably makes China more eager to diversify away from U.S. Treasuries in the search for better returns. Still, about 10 percent of the new funds are set to be earmarked for recapitalisations of China's domestic banks, in which CIC has stakes. Chinese banks are under pressure to raise as much as 400 billion yuan ($58.6 billion) of fresh capital, said one banking regulator. That means CIC could have to pay $20 billion to prevent its holdings from being diluted.
As for the rest, the focus is likely to be strategic sectors. One possible target is new energy, such as solar and wind technologies. But China's appetite for investments in oil, metals and mining seems far from being sated judging by recent activity.
The move may also take some hot air out of the domestic economy. The funding for CIC does not come directly from the foreign reserves, but from domestic debt issuance, thus more money for CIC means less liquidity sloshing around in the domestic system. But elsewhere, CIC's second wind looks likely to be a positive force for the resources sector.
I totally agree with the view that China will be eyeing more on commodities. But if CIC is going to invest funds gathered by issuing debt to the public then wouldn’t it decrease the spending power of the people in China, which in turn will slow down demand and eventually the ex-China assets will loose premium which acrued mainly because of demand coming from China?
from DealZone:
Sovereign Funds sextuple down
They may be placing smaller bets, but sovereign wealth funds were back with a vengeance in the third quarter.
Global corporate mergers and acquisitions activity involving sovereign wealth funds jumped sixfold to nearly $22 billion in the quarter, with 37 deals completed. Global announced M&A volumes involving state investment vehicles stood at $21.8 billion, up from $3.6 billion in the second quarter, according to our data.
The number of deals more than doubled from 17 in the April-June period. Only two weeks into the fourth quarter, there were five pending or completed deals with a combined value of $164.7 million. At the height of the boom in the first quarter of 2006, sovereign wealth funds sealed 35 deals worth $45.7 billion.
Managers at sovereign wealth funds -- those who have kept their jobs -- probably feel they have a lot to make up for, having lost most of some $80 billion they poured into banking shares before the peak of the crisis.
