Friday, October 17, 2008
Sovereign Wealth Returns from Sidelines
Mideast and Chinese money is back. After largely staying on the sidelines during the past few tumultuous weeks of the global financial crisis, the cash-rich governments of the Persian Gulf and China appear to be getting back in the game. The Qatar Investment Authority, with an estimated $65 billion war chest, on Thursday led a capital injection of 10 billion Swiss francs ($8.83 billion) into Credit Suisse Group. The investment will boost Qatar's stake in the Swiss banking giant to something under 10%, from just under 2%, according to a person familiar with the situation. Also Thursday, three Libyan government institutions took a 4.23% stake in Italian bank UniCredit SpA and said they would back the bank's recently announced capital increase. The Central Bank of Libya, the Libyan Investment Authority and state-owned Libyan Foreign Bank acquired the UniCredit stake on the Milan Stock Exchange, according to a statement from the central bank. Meanwhile, the Chinese government intends to raise its ownership stake in Blackstone Group LP, according to people familiar with the situation. In a securities filing Thursday, Blackstone said it reached an agreement with China Investment Corp. that will allow the country's year-old $200 billion investment fund to increase its holding in the New York-based private-equity firm to 12.5% from 9.9%. CIC is expected to purchase those shares on the open market, according to those people. The new investments come despite local criticism in China and parts of the Middle East over previous investments in Western financial firms that have fared poorly. Persian Gulf governments, meanwhile, have recently appeared preoccupied with their own economic headwinds. Last month, Kuwait said its investment fund, which had bought big Wall Street stakes earlier in the year, would be channeling funds into the local stock market, which has fallen sharply. As recently as earlier this week, Qatar appeared more focused on the domestic front. Monday, it said the QIA would buy stakes in its publicly listed banks of as much as 20%. Qatar has been bullish on Western banking stocks for most of the year. In January, Sheikh Hamad bin Jassim Al Thani -- the QIA's chief executive and the country's prime minister -- said he was looking to pump some $15 billion in investments into Western banks. Qatar officials suggested they were more interested in relatively small stakes in a basket of a dozen or so different banks. They didn't join Middle East, Asian and other investors in big, headline-grabbing capital injections in Citigroup Inc., Merrill Lynch & Co. and others. As Wall Street's woes continued through the rest of the year, those and other big investments in U.S. and European firms looked increasingly poorly timed. Asian and Mideast funds took heat for squandering government cash. In Kuwait, lawmakers attacked the Kuwait Investment Authority's decision to invest in Citrigroup and Merrill Lynch. China's CIC paid $3 billion for a 10% stake in Blackstone just ahead of its initial public offering in June 2007. That position has lost about 70% of its value. The expected additional investment in Blackstone isn't a bailout but appears to be a bet on Blackstone at its depressed valuation. Unlike other financial institutions that need to raise outside capital, Blackstone operates with very little leverage at the corporate level. Credit Suisse approached the QIA looking for capital to strengthen its balance sheet, and the fund felt comfortable enough with its previous investment in the bank and its strong franchise to agree to invest more, according to a person familiar with the situation. Credit Suisse didn't disclose details of its fund raising. But based on Thursday's closing share price, Qatar's new stake in the company could be valued at as much as 5.1 billion Swiss francs, or $4.5 billion. The Olayan Group, a private Saudi Arabian conglomerate and investment group, also participated in the capital-raising, according to the Swiss bank. Olayan has also been a big, long-time investor in the Swiss bank.