The world’s largest waterfront development
in the world’s fastest growing city.
Al Burj is a skyscraper in Dubai, United Arab Emirates by developer Al Nakheel. It forms the centerpiece of the Dubai Waterfront, the world's largest man-made waterfront which is also being developed by Al Nakheel.
The Dubai Waterfront, is the result of two years of work sessions and feasibility studies by world-renowned architects, planners, engineers and consultants, all led by Nakheel, Dubai’s premier development company. An unprecedented offering at an unimaginable scale, Dubai Waterfront is bigger than Manhattan and Beirut, and offers investors over 250 master-planned communities.
The vision behind Dubai Waterfront is to create a world-class destination for residents, visitors and businesses in the world’s fastest growing city. This ambitious development is organized around key components of the master plan, encompassing a new downtown, Madinat Al Arab, which is anchored by Al Burj – the world’s tallest building.
Surrounding the harbor is a series of zones with mixed use, commercial, residential, resort and amenity areas. Together they form the symbol of Dubai’s meteoric rise, and the grand intent of this truly unprecedented master plan.
With petroleum and natural gas reserves swiftly diminishing, the United Arab Emirates is becoming less dependent on natural resources as a source of revenue; however, petroleum and natural gas exports still play an important role in the economy, especially in Abu Dhabi. A massive construction boom as envisioned by Sheikh Mohammed bin Rashid Al Maktoum, the Prime Minister, an expanding manufacturing base, and a thriving services sector are helping the UAE diversify its economy. Nationwide, there is currently $350 billion worth of active construction projects. Such projects include the Burj Dubai, the world's tallest building, Dubai World Central International Airport which, when completed, will be the most expensive airport ever built, and the three Palm Islands, the largest artificial islands in the world. Other projects include the Dubai Mall which will become the world's largest shopping mall when completed, and a man-made archipelago called The World which seeks to increase Dubai's rapidly growing tourism industry.
The Chairman of Dubai World, Mr. Sultan Ahmed Bin Sulayem is recognized as one of the leading businessmen in Dubai.
A holding company that manages and supervises a diversified portfolio of businesses and projects owned by the Government of Dubai, Dubai World™ contributes to the rapid economic growth across the globe through a variety of sectors, including Property Development & Hospitality, Transport & Logistics, Maritime, Financial Services, Multi Commodities and Retail.
The company was launched to continue expanding Dubai’s aggressive growth both domestically and abroad. It is a powerful economic engine with a collection of diverse and successful companies including: Dubai Ports World (DP World), P & O, Free Zone World, Dubai Drydocks, Dubai Maritime City, Dubai Multi Commodities Centre, Limitless, Nakheel, Istithmar, Tejari and Technopark, among others. Dubai World™ is also associated with Kerzner, One & Only, Atlantis, Island Global Yachting, Inchcape Shipping Services and additional strategic partners.
Mr. Bin Sulayem’s leadership vision has also spearheaded a number of groundbreaking developments and offerings:
Led DP World to buy the UK’s P&O group for US $6.8 billion in March 2006, making it the largest acquisition in the industry’s history. It propelled DP World to become one of the top three marine terminal operators in the world and built the widest industry network with 52 terminals spanning 30 countries and 5 continents.
Created JAFZA (Jebel Ali Free Zone), a remarkable network of over 4000 companies from 100 countries, paving the way for industrial development in the Middle East.
Established Nakheel, a Real Estate and Tourism Property Development Firm, responsible for building the three iconic developments of The Palm™, the world’s largest man-made islands being constructed off the coast of Dubai. Heralded as “the eighth wonder of the world” and visible from the moon, this successful project has attracted international acclaim. It was followed by The World, a prestigious 300 island development shaped to form a map of the globe, and Dubai Waterfront, considered the most ambitious reclamation project in the world comprising over 250 master planned communities, launching recently and meeting with great success.
Setup Istithmar (which means Investment), a holding company and major investment house focusing on Private Equity and Real Estate, to deliver exceptional returns for shareholders. Istithmar is comprised of a diversified portfolio of investments in Consumer, Financial Services, Industrial, Tourism & Hospitality and the Medical Sectors in markets across North America, Europe, Asia and the Middle East.
Pioneered the Dubai Multi Commodities Centre (DMCC), establishing a commodity marketplace in Dubai to provide industry-specific market infrastructures and a full range of facilities for the gold and precious metals, diamonds and colored stones, energy and other commodities industries.
Founded Limitless, an integrated, international real estate developer, aiming to become an international industry leader, investing in global real estate with a vision to make a new home away from home where ever possible.
By controlling the greatest economy in the world, the US economy, the Arabians can decide and manipulate the fate of Israel, their ancestral rivals and perennial thorn in their foot. Ever since the settlement of the Jews in Israel in 1948, and the official recognition of Israel as a sovereign nation, the Arabians have fought tooth and nail to reverse this decision and expel the Jews from Palestine.
Given that sticks and stones, bombs and rockets have failed to dislodge the Israelis, the Arabians have embarked on a different approach, the economic approach. Ever since the Rothschild’s took over the world economy, establishing banks in England, Austria, Germany, Switzerland and the Federal Reserve, the Jews have faired well and Israel has always had a friend in Washington; with the hostile wrestling of the world economy from the Jews, the Arabians will not only become our landlords, they will annihilate Israel. If the Golden rule is true, then he, who controls the gold, makes the rules!
From the above literature and images, one can deduce that Dubai, just like New York, has the earmarks of becoming the center of global trade; while everything being built in this desolate desert appears to be excessively exaggerated, it is in truth proportional to its future impact at the global stage.
Just like all other great empires have come and gone, from the Ottoman Empire to the Roman Empire, and in the last century the British Empire, sadly this American Empire is abruptly and systematically coming to an end, and paving the way for the Chino-Arabian Empire. Unless a renewable source of energy is accelerated into the market, the Arabians will prevail over the Chinese.
Sovereign-Wealth Funds - The Great American Buyout
Kuwait set to invest as Merrill seeks $4bn
By Henny Sender and Ben White in New York and Stephanie Kirchgaessner in Washington
Published: January 13 2008 19:29 | Last updated: January 13 2008 19:29
Merrill Lynch is seeking about $4bn in a second capital raising, as the hole in the US investment bank’s balance sheet continues to grow.
The Kuwait Investment Authority is expected to be a significant investor in the new deal, which could be announced as soon as midweek, according to people familiar with the matter. Other investors could come from Europe.
KIA, which may also invest as much as $2bn or $3bn in Citigroup, is emerging as an large source of rescue finance on Wall Street. Once among the most conservative of sovereign wealth funds, KIA is changing its strategy in order to move more quickly than competitors and seize opportunities amid the turmoil in the US credit markets, these people say. Both Merrill and KIA declined to comment.
Both the price and the terms of the deals at Citi and Merrill are still being negotiated.
The latest round of capital raising comes at the start of a round of earnings reports during which big US banks and brokers are expected to reveal as much as $40bn in further mortgage-related writedowns. Action taken by Citi and Merrill will be closely watched by other institutions
Citi is expected to announce a writedown of close to $20bn and present plans to raise as much as $14bn in new capital from the Chinese and public market investors as well as the KIA. Analysts expect Vikram Pandit, Citi’s recently installed chief executive, to slash the dividend 40 per cent or more to improve Citi’s capital position.
The infusion would follow the $7.5bn Citi raised from the Abu Dhabi Investment Authority in late November.
Merrill Lynch on Thursday is expected to announce a writedown of $10bn to $20bn. Brad Hintz, Sanford Bernstein analyst, said a writedown of more than $20bn “would significantly increase leverage and would threaten the credit ratings of the firm”.
Any new capital infusion from the KIA and others would follow the $6.4bn Merrill raised last month from Temasek, the Singapore government fund, and Davis Selected Advisors, a New York-based asset manager.
More positive news is expected to come from JPMorgan Chase on Wednesday. The bank, which has avoided the worst of the mortgage problems thus far, is expected to report earnings of 93 cents per share, a decline of 14 per cent from last year.
JPMorgan is in a strong position and is thought likely to pursue a significant US acquisition to expand its domestic consumer business. Often mentioned candidates include Washington Mutual and SunTrust.
News that Citi is seeking further financing from sovereign wealth funds comes as some analysts in Washington say the state-controlled funds could soon face closer scrutiny.
Chuck Schumer, the New York senator and influential Democrat, quickly blessed an investment last year in Citi by Abu Dhabi. But last week, Mr Schumer expressed a hint of caution at reports that the US bank might receive more foreign government investment.
“Because sovereign wealth funds, by definition, are potentially susceptible to non-economic interests, the closer they come to exercising control and influence, the greater concerns we have,” he said.
While few predict that investment could be blocked, one Washington attorney who works on cross-border transactions says he believed minority investments could become subject to reviews by the inter-agency Committee on Foreign Investment in the US (Cfius)that investigates foreign takeover of US assets.
“It is one thing if you have one or two of these smallish deals,” the attorney says. “It is quite another thing, when institutions are being propped up by a bunch of investors, all from the same three states.”
So far, Citi and private equity groups that have received minority investments have not submitted their transactions to a voluntary review by Cfius. That could change if the political temperature increases on such deals.
Is a Prince Returning To Citi?
By Mark DeCambre
TheStreet.com Senior Writer
1/12/2008 6:52 PM EST
Click here for more stories by Mark DeCambre
Updated from Jan. 11
Saudi billionaire Prince Alwaleed may make a significant investment to help out cash-strapped Citigroup (C - Cramer's Take - Stockpickr - Rating), according to media reports.
On Friday, CNBC reported that the Saudi prince might invest as much as $15 billion. Then on Saturday, The Wall Street Journal, citing people familiar with the matter, reported that Prince Alwaleed would be joined by other investors, including the China Development Bank. The Journal reported it was unclear how much Prince Alwaleed would invest, but that the China Development Bank likely would contribute $2 billion.
The investments are expected to come as the bank is set to report fourth-quarter earnings expected to be weighed by a huge writedown tied to mortgages, leveraged loans, reserves and trading losses that may hit $24 billion next week.
Prince Alwaleed's potential investment would be Citi's second major cash infusion by the wealthy financier, who bailed out the bank back in 1991. Alwaleed is the single largest individual owner of Citi shares, but has a total stake less than 5%, which allows him to fall below the threshold requiring him to publicly file with the Securities and Exchange Commission. The investment amount reported by CNBC likely would drive him above that limit. The Journal's Saturday report said Citi was hoping to raise a total of $8 billion to $10 billion from multiple investors.
Financially troubled Wall Street firms such as Merrill Lynch (MER - Cramer's Take - Stockpickr - Rating) and Citi are desperate for fresh funds even after arranging billions in cash infusions from foreign investors because values in tens of billions of hard-to-value mortgages that they still hold on their books continue to shrink, traders tell TheStreet.com. Citi obtained $7.5 billion from Abu Dhabi Investment Authority, and Merrill received $6.2 billion from Singaporean fund Temasek and Davis Selected Advisors.
On Thursday, the Wall Street Journal reported that both Citi and Merrill were aggressively trawling for funds in the Middle East and in Asia, to steady their shaky balance sheets after already posting billions in writedowns. The report did not identify specific funding sources.
Citi could score as much as $10 billion from investors and Merrill could be obtaining $4 billion, the Journal noted Thursday.
Before the weekend, a Citi spokesman declined to comment on any reports, as did a Merrill spokeswoman.
Citi originally had been expected to take a writedown in the fourth quarter of less than half of what's being predicted now. Merrill is also slated to take a bigger-than-projected writedown of $15 billion on soured mortgages, according to a New York Times report Friday.
Citi's board also is expected to meet a day before it reports earnings on Jan. 15 to discuss cutting its dividend in half, the Journal said. The move, which Citi has repeatedly said it would not take, could save $5 billion, analysts have reported.
For Citi, the prospect of cutting its dividend and soliciting funds is déjà vu. About 17 years ago, Alwaleed invested $590 million in the bank, which at the time was known as Citicorp. That investment has earned Alwaleed billions, but the value of his stake has plunged in recent months in the wake of the departure of Citi's former CEO Charles Prince, who has been replaced by CEO Vikram Pandit and Chairman Win Bischoff.
CNBC's reports of the magnitude of Alwaleed's investment this time around, however, appear to be improbable, since it could raise the prince's investment to above 10%. At this point, the reported $15 billion investment alone would represent a 10% stake in Citi's outstanding shares.
U.S. government officials have been grousing about the large positions foreigners have taken in domestic financial institutions for fear of their political influence on the organizations, but the cash needs of Citi, Merrill and other financials appears dire.
Earlier in the month, Keefe, Bruyette analyst Diane Merdian estimated that Citi could face a $15 billion to $16 billion writedown, while Goldman Sachs' (GS - Cramer's Take - Stockpickr - Rating) William Tanona predicts a Citi writedown in the neighborhood of $19 billion.
Kuwaiti chief focuses on long-term opportunities
By Henny Sender
Published: January 1 2008 22:03 | Last updated: January 1 2008 22:03
Bader Al-Sa’ad’s office is not what one might expect of the head of the Kuwait Investment Authority, a $200bn fund with interests from real estate in London to a major bank in China.
Tucked deep inside the Kuwaiti Ministry of Finance, Mr Al-Sa-ad’s space is large but functional.
Shabby carpets, a few simple watercolour landscapes and a plain wooden desk lend it a government-issue aesthetic that contrasts starkly with the elegant offices of, for example, his counterparts in Abu Dhabi.
The scion of one of the wealthiest Kuwaiti families, Mr Al-Sa’ad has rejuvenated the KIA sovereign wealth fund in his four-year tenure.
He has also become among the most visible and articulate defenders of such funds.
“Sovereign wealth funds are not speculative,” he says. “They are stable and disciplined. They are building long-term portfolios. They don’t take advantage of short-term mispricing. And unlike hedge funds, they don’t use leverage. They don’t short currencies the way some hedge funds do.”
Mr Al-Sa’ad says there are great differences between sovereign wealth funds. “Even in Singapore, Government of Singapore Investment Corporation and Temasek are totally different. There is also a difference between opportunistic foreign exchange reserve management and what long-term future generation funds like KIA do. And some of the newer funds have a different investment style than the KIA.”
He is also outspoken about a backlash against sovereign wealth funds in the west. “We understand the concern about security and the acquisition of whole businesses in sensitive sectors like ports. But the security issue is different from country to country. What one country considers as a national security issue, another country welcomes as investors in that sector. It is legitimate to not allow acquisitions for security reasons but to say you have to always be passive is not a legitimate request.”
Mr Al-Sa’ad shares the puzzlement of executives at other sovereign wealth funds, such as the China Investment Corp, over calls from US Treasury officials and former Treasury officials for greater transparency in sovereign funds’ decision-making. “We are concerned about what they mean when they call for transparency. Do we have to announce every investment before we make it? ” he asks.
The 49-year-old former basketball player’s current big concern is equity volatility. “We have seen volatility in the market now for five months. It is also a worry that good names are trading below par and a real shock that there are no longer buyers for triple A rated commercial paper,” Mr Al-Sa’ad says. The recent interest rate cut was evidence of the US government’s commitment to addressing the crisis, he adds.
Although his recent focus and passion has been Asia, Mr Al-Sa’ad is cautious about the Chinese stock market. “Asset prices in the Chinese equity market are inflated because in China so much money is chasing so few opportunities. This is a situation of demand and supply,” Mr Al-Sa’ad says, as he drinks mint tea.
“The supply of public equities should be increased so as to satisfy the domestic demand for participating in the financial miracle of China. This will use up the excess liquidity from the stock market.”
At the same time, Mr. Al-Sa’ad is looking at property but in the secondary cities of China rather than in Shanghai or in Beijing. And he says he is “bullish” on Vietnam.
“The government has a will to change the economy; there is a huge jump in direct foreign investment year over year,” he says.
“They are learning from the Chinese experience and it is easier to enter Vietnam than other emerging economies . . . We are interested in buying a stake in a financial institution but these stakes are not cheap.”
Kuwaiti fund eyes US subprime bargains
By Henny Sender in New York
Published: January 1 2008 22:03 | Last updated: January 1 2008 22:03
The Kuwait Investment Authority is following its peers in the Middle East in the hope of finding bargain investments in the US in the wake of the subprime mortgage crisis.
The $213bn sovereign wealth fund, unique in the Middle East because its inflows are governed by law and subject to parliamentary oversight, rather than the wishes of the ruling family, is particularly interested in opportunities in financial services.
“Perhaps we are at the eye of the storm now and are close to the peak of the problem,” Bader Al-Sa’ad, head of the KIA, told the Financial Times. “We don’t see prices dropping much more.”
Mr Al-Sa’ad said he intended to speed up decision-making at the KIA to take advantage of the opportunities thrown up by the crisis. “With Citi, the Abu Dhabi Investment Authority had good timing,” he said, noting that it took ADIA less than three weeks to seal its late November deal to invest $7.5bn in convertible securities in Citigroup. “I believe we need to move faster in some of our response time.”
In recent months, the KIA has been scouring Asia for investments, especially in banks, to capitalise on torrid economic growth in the region. The KIA has already made huge profits on its $700m stake in Industrial and Commercial Bank of China. But Asian banks are also expensive, trading in many cases at up to six times book value. By contrast, banks in Europe and the US, which have been hard-hit by the turmoil in the mortgage market, are trading at about book value, he said.
Like executives at other sovereign wealth funds, Mr Al-Sa’ad expressed dismay that off-balance sheet issues could surface in the US so soon after the shock of Enron’s implosion, following that company’s massive use of off-balance sheet vehicles to disguise the extent of its debts.
Mr Al-Sa’ad said sovereign wealth funds were long-term investors and far more stable than hedge funds because they do not use a lot of leverage. He took care to highlight the differences among sovereign wealth funds, noting that while some are increasingly competing with private equity firms, others, such as the KIA, seek to partner with them.
Copyright The Financial Times Limited 2008
Sovereign funds snap up bank stakes
By Peter Thal Larsen in London
Published: September 25 2007 19:13 | Last updated: September 25 2007 19:55
Sovereign wealth funds have invested an estimated $35bn in the shares of banks, securities houses and asset managers since the beginning of 2006 in a sign of the growing clout that state-backed investment vehicles are wielding in the financial sector.
Morgan Stanley analysts estimate that sovereign wealth funds such as Temasek, the Singapore state investment company, have made investments of about $26bn in the past six months alone.
These investments cover companies such as Barclays, Blackstone, Carlyle, Deutsche Bank, London Stock Exchange, Nasdaq and HSBC
The most recent flurry of activity accounts for less than 1 per cent of the $2,800bn in assets that sovereign wealth funds are estimated to control.
But the flow of cash from state-backed agencies, especially those based in Asia or the Middle East, is prompting concern among politicians in Europe and the US, who worry it may give foreign governments influence over the financial sector.
Temasek, for example, has 38 per cent of its portfolio in financial stocks, as it believes the growth of these companies will be linked to the emerging middle class in Asia.
According to Morgan Stanley, sovereign wealth funds have favoured institutions with exposure to emerging markets, the securities business or the private equity and hedge fund industries.
“The crescendo of investing could provide a degree of valuation support to parts of an underperforming sector,” the analysts argue, though they point out the funds have so far shown little interest in smaller western banks or insurance companies.
Though much of the recent investment has come from funds in Asia and the Middle East, other countries are also becoming active. The Norwegian government’s pension fund recently decided to increase the share of equities in its $328bn portfolio to 60 per cent from 40 per cent.
Many funds have been careful to limit their influence. When China’s state investment fund took a $3bn stake in Blackstone it bought non-voting shares and did not have a seat on the board. But Temasek and China Development Bank have the right to appoint directors to the board of Barclays under their deal.
Sovereign wealth funds strike again
Morgan Stanley becomes the latest financial firm to score an investment from the new power players in global finance.
By David Ellis and Grace Wong, CNNMoney.com staff writer
December 19 2007: 9:48 AM EST
NEW YORK (CNNMoney.com) -- Wall Street bank Morgan Stanley said Wednesday it received a $5 billion injection from China's state-run investment arm, becoming the latest financial firm to look overseas for cash.
Morgan Stanley (MS, Fortune 500), addled by bad bets on risky home loans, joins the ranks of Citigroup, UBS and Bear Stearns, which all have received infusions from foreign players in recent months.
Sovereign wealth funds, which act as a country's investment arm, have long been investing money gained through exports or from the sale of commodities such as oil. But the credit crisis, which has left several financial strapped for cash, has created even more opportunities for these funds.
The investment by China Investment Corp., which took a stake in private equity titan Blackstone Group (BX) in May, comes on the heels of the $7.5 billion cash infusion Citigroup (C, Fortune 500) received from Abu Dhabi's state investment fund last month.
Earlier this month, Swiss bank UBS (UBS) said it received an $11.5 billion investment from Singapore's investment arm and an investor in the Middle East. In October, Bear Stearns Co. (BSC, Fortune 500) and Chinese investment bank Citic Securities Co. said they would each invest $1 billion in the other.
Morgan Stanley said China's sovereign wealth fund would take a less than 10 percent stake in the company, and that the investment would bolster the firm's capital position and growth opportunities abroad.
"We are delighted to welcome CIC as a long-term investor in Morgan Stanley, and believe it is an important step in increasing the flow of capital between our countries and across these increasingly critical markets," Morgan CEO John Mack said in a statement.
Located both in the oil-rich Middle East, as well as other nations such as Russia and Singapore, sovereign wealth funds are expected to wield even more might in the coming years. Combined assets under management are expected in the next three years to quadruple to $7.9 trillion from $1.9 trillion, according to Merrill Lynch.
Abu Dhabi buys Citi stake
While government debt like U.S. Treasuries have long been their investment vehicle of choice, the funds' appetites have grown more complex as they have searched for greater returns, said Jay Bryson, global economist at Wachovia Corp.
"There are only so many Treasury securities or government bonds out there they can buy, so they are looking to diversify," said Bryson.
Economists argue that investments by sovereign funds are important to the U.S. economy, providing capital to firms and supporting the dollar. At the same time, the funds have have faced plenty of criticism.
World leaders have worried that the funds may try to wield their investments as a diplomatic tool and called for greater transparency about investments.
Lawmakers in Washington have been equally cautious, despite a recent push by both the White House and some members of Congress to court foreign investors after last year's widely-publicized failure of Dubai Ports World to manage six U.S. ports.
Going forward, sovereign wealth funds will most likely try to avoid scrutiny altogether by acquiring small stakes and forgoing management control, said Edwin Truman, senior fellow at the Peterson Institute for International Economics.
"Sovereign wealth funds have learned from their experiences," said Truman.
This is an updated version of a story that ran on CNNMoney.com on Nov. 27.
Oil Producers See the World and Buy It Up
By STEVEN R. WEISMAN
Published: November 28, 2007
WASHINGTON, Nov. 27 — Flush with petrodollars, oil-producing countries have embarked on a global shopping spree.
With a bold outlay of $7.5 billion, the Abu Dhabi Investment Authority is about to become one of the largest shareholders in Citigroup.
The bank had already experienced the petrodollar’s power this month when another major shareholder, Prince Walid bin Talal of Saudi Arabia, cleared the way for the ouster of its chief executive, Charles O. Prince III.
The Dubai stock exchange, meanwhile, is negotiating for 20 percent of a newly merged company that includes Nasdaq and the operator of stock markets in the Nordic region. Qatar, like Dubai a sheikdom in the Persian Gulf, might compete in that deal.
In late October, Dubai, which has little oil but is part of the region’s energy economy, bought part of Och-Ziff Capital Management, a hedge fund in New York. Abu Dhabi this month invested in Advanced Micro Devices, the chip maker, and in September bought into the Carlyle Group, a private equity giant.
Experts estimate that oil-rich nations have a $4 trillion cache of petrodollar investments around the world. And with oil prices likely to remain in the stratosphere, that number could increase rapidly.
In 2000, OPEC countries earned $243 billion from oil exports, according to Cambridge Energy Research Associates. For all of 2007 the estimate was more than $688 billion, but that did not include the last two months of price spikes.
“If you look at gulf countries, they have a total common economy that is about the size of the Netherlands,” said Edward L. Morse, chief energy economist of Lehman Brothers. “These are tiny countries, but they have to place collectively over $5 billion a week from their oil revenues. It’s not an easy thing to do.”
The explosion in investment has set up some of its own cross-currents. While the recent decline in the value of the dollar is making investment in the United States cheaper, many investors are holding back out of fear that the dollar will decline further, diminishing the worth of their dollar holdings.
Many oil investors are also worried about a potential political reaction in the United States similar to the furor of last year when Dubai tried to acquire a company that operates American ports. European leaders, at the same time, worry that Russia is using its oil revenues to snatch up pipelines and other energy infrastructure in their region.
Such concerns seem to be driving investments to other parts of the world, many analysts say.
“The investments are diversifying outside the United States, though the U.S. still has the bulk of it,” said Diana Farrell, director of the McKinsey Global Institute, a research arm of the McKinsey consulting firm, which calculated in October that petrodollar investments reached $3.4 trillion to $3.8 trillion at the end of 2006.
“Europe is a prime target,” she added, “but at least 25 percent of foreign investments from the Persian Gulf are in Asia, the Middle East and North Africa.”
Though oil-producing countries have been looking at investments in the West since the 1970s, their strategies back then were largely confined to safe assets with a low return, like United States Treasury debt.
By 2001, with the collapse in oil prices, many of the oil exporters had depleted their dollar reserves, economists say.
But the boom in oil prices in the last five years has changed all that. It has persuaded oil producers to set up or expand “sovereign wealth funds” as vehicles to invest far more aggressively in the West, in their own economies and in emerging markets.
Other petrodollar investments are made through government-owned corporations, corporations and individuals like Prince Walid, who owns stakes not only in Citigroup but also News Corporation, Procter & Gamble, Hewlett-Packard, PepsiCo, Time Warner and Walt Disney.
The oil-rich nations are also investing more in real estate, private equity funds and hedge funds, analysts say, and increasingly they are investing the money on their own, bypassing the major financial institutions of the United States and Europe.
“The oil-producing countries simply cannot absorb the amount of wealth they are generating,” said J. Robinson West, chairman of PFC Energy. “We are seeing a transfer of wealth of historic dimensions. It is not just Qatar and Abu Dhabi. Investment funds are being set up in places like Kazakhstan and Equatorial Guinea.”
Precise figures of the global picture in petrodollars are not easy to come by, in part because the big investors in the Persian Gulf and elsewhere are not obliged to disclose their portfolios or activities.
The lack of transparency is a problem to leaders of Western industrial economies. In October, Henry M. Paulson Jr., Treasury secretary of the United States, and the finance ministers of other major industrial democracies called for an international code of “best practices” by cross-border investors requiring greater disclosure of assets and actions.
The petrodollar era has benefited the world economy, economists say, notably by enhancing liquidity at a time when foreign currency reserves of export giants in Asia are also making the world flush with cash.
Recently Ben S. Bernanke, chairman of the Federal Reserve, has spoken of a “global savings glut” that has lowered interest rates worldwide. Ms. Farrell, of the McKinsey Institute, estimates that petrodollars may have kept American interest rates three-quarters of a percentage point lower than they would otherwise be, a direct benefit to American consumers.
But the flood of investments is also causing problems, like overheated economies and asset bubbles in oil-rich nations.
“The gulf countries are pouring credit into their economies, adding to excess liquidity,” said Charles H. Dallara, managing director of the International Institute of Finance, an organization of leading private financial companies. “It is eroding the earning power of local citizens and becoming a source of economic instability over time.”
Some investment deals have fallen through, to the embarrassment of all sides. This year Qatar sought to do a leveraged buyout of a retailer in Britain, the J Sainsbury supermarket chain.
After starting the bid in July, Qatar faced concerns from unions, the Sainsbury family and others over whether the Qataris wanted Britain’s third-largest grocery chain just for the underlying real estate and whether the company could survive the amount of debt being incurred. The deal fell through three weeks ago, when Qatar said that the global credit squeeze made the borrowing costs too high.
The decline in the dollar has also introduced new uncertainties into predicting petrodollar investment patterns. C. Fred Bergsten, director of the Peterson Institute of International Economics, said that while some countries in the gulf were trying to diversify their investments away from the dollar and into euros and pounds sterling, the Saudis were trying to quell that trend out of fear that the dollar will decline further and diminishing the value of their assets.
A measure of discord over the dollar was apparent at the OPEC meeting in Saudi Arabia this month. Iran and Venezuela, the two biggest political foes of the United States among the oil producers, complained that oil was being sold in a currency whose value was eroding by the day.
A Sovereign wealth fund (SWF) is a fund owned by a state composed of financial assets such as stocks, bonds, property or other financial instruments.
Sovereign wealth funds are, broadly defined, entities that can manage the national savings for the purposes of investment. The accumulated funds may have their origin in, or may represent foreign currency deposits, gold, SDRs and IMF reserve position held by central banks and monetary authorities, along with other national assets such as pension investments, oil funds, or other industrial and financial holdings. These are assets of the sovereign nations which are typically (but not necessarily) held in domestic and different reserve currencies such as the dollar, euro and yen. The names attributed to the management entities may include central banks, official investment companies, state pension funds, sovereign oil funds and so on.
China takes the bank
Jul 26th 2007
From The Economist print edition
How sovereign investors plan to operate
THE mission of China Development Bank (CDB) is to support “the state’s policies to implement disciplined development and build a harmonious society.” Barclays bank, which was founded in the early days of the Qing dynasty, exists to serve its customers and shareholders. The fortunes of this unlikely pair are now joined: the Chinese bank announced this week that it is taking a stake in Barclays—as is Temasek Holdings, part of the government of Singapore’s investment arm. This will boost Barclays in its bid for ABN AMRO, a Dutch bank. It also marks a new adventurousness on the part of China’s government.
Although CDB is a state-owned bank, most governments buy their foreign assets through state-run investment pools, known as sovereign-wealth funds. These funds are getting bigger and bolder. They have some $1.5-2.5 trillion to play with, according to America’s Treasury, a sum expected to grow fast. Although sovereign funds began investing conservatively, the Barclays deal shows that they can provide an attractive source of funding for mergers and acquisitions. Some sovereign funds are also getting into the buy-out business. Yet little is known about these funds.
To understand them, it helps to think about where their money comes from. Many emerging markets, notably China, have built up vast reserves of foreign exchange. Such reserves are traditionally invested in liquid assets like Treasury bonds, which could be sold quickly to prop up the currency. But many countries have far more reserves than they need for this purpose. And China is protected by capital controls. That leaves the government free to buy more exciting things where it might make a better return. Earlier this year China decided to set up a sovereign fund.
Most of the other funds get their money from oil exports. Such funds have been around for some time but have been multiplying recently. Russia intends to channel some of its oil money into a sovereign-wealth fund. Kazakhstan, Azerbaijan, Venezuela, Bolivia, Nigeria and Angola have all either set up funds recently or are looking at doing so.
Many of these funds are trying to imitate the success of Norway’s Government Pension fund. This has two jobs: to act as a buffer against volatility in the price of oil and as a long-term savings vehicle. It too is taking on more risk. In April the fund announced it would increase the share of equities in its portfolio from 40% to 60%.
The Chinese fund is likely to be modelled on Singapore’s two funds, GIC and Temasek. These entities are more used to taking big stakes in companies than Norway’s fund. The Singaporean funds also try to import expertise through their investments—hence a focus on telecoms and banking. It would be surprising if China’s fund did not make investment decisions for similar reasons.
It is hard to see how the exemplary Norwegians, Alaska’s Permanent Fund Corporation or Australia’s Future Fund could be anything other than a good thing for financial markets. But the other funds’ lack of transparency is worth worrying about. If one made a bad bet and had to unwind it fast, nobody would know what was happening. No one knows how they manage risk. And although funds have tried hard to avoid buying assets that might attract the attention of politicians and voters, nobody knows how politically motivated they might become.
That said, sovereign funds are hardly the only force in the financial markets that remains murky. They should also prove to be long-term investors, able to buy when markets are flat or falling. That is good for stability. Such investments can bring benefits for the recipients too. Barclays says that CDB’s stake will create business opportunities for the bank in China.
As long as such reciprocity remains, sovereign funds should find themselves able to shop fairly freely. America’s Committee on Foreign Investment has made it clear that it will consider the openness of other countries’ markets when their governments are trying to buy American companies. On July 25th Alistair Darling, Britain’s chancellor of the exchequer, said that Britain would resist any calls for protectionism arising from worries about sovereign-wealth funds, as long as the governments that backed them kept their markets open. If they want things to stay that way, the funds should open up too.
Singapore’s GIC builds stake in British Land
By Daniel Thomas and Neil Hume
Published: January 10 2008 07:08 | Last updated: January 10 2008 07:08
The Singapore government has quietly built a large stake in British Land in a sign that investors could be returning to the battered UK commercial property market.
GIC, Singapore’s investment arm, on Wednesday declared a stake of just more than 3 per cent in the real estate investment trust, adding to its already significant holdings in commercial property.
GIC is now the fourth largest shareholder in British Land, with a stake worth £134m.
The sovereign wealth fund is traditionally a passive investor, but analysts say the stake building is significant because it could indicate a bottom has been reached for shares in the sector.
Listed property shares have almost halved in the past year during a savage sell-off. British Land was on Wednesday trading at a 48 per cent discount to its last quoted net asset value. Shares in British Land ended the day up 1p at 874½p.
“The share price is almost half what it was and GIC can clearly see an opportunity to build up a stake in a potentially undervalued company,” said one analyst who asked not to be named.
“It has been quietly buying into the company over a long period and we can see it continue to do so as long as the price looks good.”
Last month, JPMorgan said there was an opportunity to build a position in British Land, pointing out that the company was well positioned for a downturn owing to its secure debt resources.
The government of Singapore has been a long-term investor in UK commercial property and already holds stakes in a number of other Reits, including Great Portland Estates and Brixton.
It also holds stakes in direct property such as the Gateshead MetroCentre. No one at GIC was available for comment, and British Land would not comment.
Coincidentally, Paul Myners, chairman of rival Land Securities, is an adviser to GIC.
• The UK Commercial Property Trust, one of the largest listed property investment companies, on Wednesday said that its net asset value had dropped by 7.7 per cent in the fourth quarter.
The Resolution-managed fund said that property in London’s West End saw the worst falls, down about 13 per cent in the quarter in spite of the sector being regarded by analysts as one of the most resilient in the UK.
