Persian Gulf States Acquire Strategic Assets

In the long run, this will prove to be one of the most important stories of this era. How is it that most of those who were so concerned about Dubai buying U.S. ports can sit blithely by as the Gulf States buy $25 billion in strategic assets including the London Stock Exchange, NASDAQ and the Carlyle Group? This may also prove to be Bush/Cheney's greatest failure. The plummeting dollar, while beneficial for Exxon, is making certain powerful corporations easy pickings for oil producing states. These corporations are strategic in the sense that they have the power to manipulate both markets and states. They are undervalued in the sense that these powers may not translate into immediate profits.

Over time, it will become clear that it is not in our national interest to allow this sort of corporation to slip into the hands of either the Chinese or the Arab/Muslim states.


from Bloomberg.com: Worldwide:

The Persian Gulf states, flush with cash from burgeoning oil revenues, are buying overseas assets at a record rate and countering the paucity of acquisitions hampered by the summer's surge in corporate borrowing costs.

Abu Dhabi agreed yesterday to pay $1.35 billion for 7.5 percent of Carlyle Group, the world's second-biggest private equity firm. Dubai and Qatar took competing stakes in Nasdaq Stock Market Inc., London Stock Exchange Group Plc and Nordic bourse OMX AB. Qatar also won approval to examine the financial records of J Sainsbury Plc, the second-largest U.K. supermarket chain.

All told, the deals are worth $25 billion, according to data compiled by Bloomberg. The pace of international investments by Gulf states, which earn $1.2 billion a day from oil exports, is quickening as they seek to diversify beyond energy. The nations have already spent a record $68 billion on overseas acquisitions this year, the Bloomberg data show.

``They are not just putting their money in bank deposits and government bonds any more,'' said Eckart Woertz, chief economist for the Gulf Research Center in Dubai. ``They are after strategic assets.''

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The pace of takeovers may accelerate as oil trades at a record high and Dubai and Qatar race to lure international banks, asset managers and brokerages. Oil reached a record $83.90 a barrel in New York yesterday.

Based on the share prices of LSE, Nasdaq, OMX and Sainsbury on Sept. 19, Dubai's investment would be $2.5 billion and Qatar's would be $21.5 billion.

Borse Dubai said yesterday that it agreed to buy 28 percent of the London Stock Exchange from Nasdaq and stopped competing with the U.S. electronic market for control of OMX. Dubai also got a 19.99 percent stake in Nasdaq and 5 percent voting control of the company.

`Clone of Dubai'

The Qatar Investment Authority countered later in the day, by saying it bought 20 percent of LSE shares and acquired 9.98 percent of OMX.

The Qatar Investment Authority said yesterday it doesn't ``currently'' intend to make an offer for LSE. Buying the stake in Stockholm-based OMX is ``a key step'' to ``take supportive holdings'' in European exchanges, the authority said.

``Qatar is a clone of Dubai,'' said Haissam Arabi, a Dubai-based managing director of asset management for Shuaa Capital PSC. ``They have taken their lead from Dubai on most fronts. Dubai had Emirates airline, then Qatar set up Qatar Airways. Dubai established itself as a tourist destination, and then Qatar tried to position itself as such. And now as financial centers, Dubai moved and Qatar followed.''

Dubai and Qatar are overshadowing Bahrain's traditional position as the Persian Gulf's financial hub. Dubai is the second-biggest sheikhdom in the United Arab Emirates after Abu Dhabi. The six Gulf Cooperation Council states are the U.A.E., Bahrain, Kuwait, Qatar, Oman and Saudi Arabia.

Cooperative Takeovers

Mubadala Development Co., an investment company owned by the government of Abu Dhabi, will buy a 7.5 percent non-voting stake in Carlyle. Sainsbury, based in London, yesterday softened its opposition to a takeover bid by Qatar after the emirate said it would borrow less to fund the deal.

The Gulf states sometimes cooperate on acquisitions. Sheikh Hamad bin Jassim bin Jaber al-Thani, the Qatar Investment Authority's CEO and since April Qatar's Prime Minister, said in February the country may buy as much as 10 percent of Airbus SAS parent European Aeronautic, Defence & Space Co. because the shares are undervalued.

When Dubai International Capital LLC bought 3.12 percent of EADS in July, some of its money came from Qatar, according to Chief Executive Officer Sameer al-Ansari.

The Gulf's overseas acquisitions haven't always succeeded. Qatar in December lost out to a group led by Macquarie Bank Ltd. in its bid to buy Thames Water Utilities.

`A Different Issue'

Dubai-owned container port operator DP World last year agreed to buy London-based Peninsular & Oriental Steam Navigation Co. for $6.8 billion, only to be forced to sell P&O's U.S. port assets under pressure from lawmakers who threatened to block the takeover on the grounds of security.

Dubai's Nasdaq deal is ``a different issue from the port,'' House Speaker Nancy Pelosi said yesterday. ``That was a security issue. This is a marketplace issue.''

The accord didn't raise ``any alarm,'' said Massachusetts Democrat Barney Frank, chairman of the House Financial Services Committee. ``There was a physical security element'' in the port deal, he said.

President George W. Bush and some lawmakers, including Senator Charles Schumer, said the agreement still must be scrutinized. ``We're going to take a good look at it, as to whether or not it has any national security implications involved in the transaction,'' Bush told reporters.

Biggest Gas Field

Qatar has about 850,000 residents spread over 11,000 square kilometers, making it the smallest country by size and population in the Organization of Petroleum Exporting Countries. Owner of the world's biggest gas field, Qatar earned $28,576 per citizen from oil and gas exports last year.

Dubai generated 3 percent of its gross domestic product from oil last year and has a population of about 1.5 million. As oil wells run dry, the emirate is building the world's tallest tower, offshore islands in the shape of palm trees, and a leisure park three times the size of Manhattan.

It's also earmarked more than $82 billion for investment in aviation, including construction of the world's biggest airport.