Qatar sovereign wealth fund ‘invests in Blackberry debt’

Qatar Holding LLC, the investment arm of the Qatari sovereign wealth fund, is among a number of investors who have put money in Blackberry’s $1bn convertible debt offering, it has been reported.

Following the telecommunication firm’s decision on Monday to abandon sell-off plans as well as the replacing of their chief executive, shares in the company saw an immediate decline of 16%.

According to Reuters, Qatar Holding purchased as much as $200m of the offering and was attracted to the investment because of the size of the coupon on offer.

Fairfax Financial Holdings Ltd, Blackberry’s largest shareholder, has also put in a further $250m.

Blackberry previously announced that it would raise $1bn by issuing convertible notes to a small group of long-term investors.

Qatar Holding, which is the investment arm of the Gulf state’s sovereign wealth fund, has so far declined to comment.

It has already bought stakes in large blue-chip companies such as Royal Dutch Shell, jewellery maker Tiffany and Co and Germany’s Siemens.

The fund is said to currently have an investment capacity of between $30bn and $40bn a year and has been on the lookout for investment opportunities in debt instruments which offer greater returns than vanilla bonds.

Last week Reuters reported that the fund has built up a $1bn stake in Bank of America Corp and has also recently invested a total of $200m in Samsung Electronics.

S&P Dow Jones upgrades UAE and Qatar to emerging markets

International index compiler S&P Dow Jones has upgraded the UAE and Qatar from frontier to emerging market status in its annual country reclassification announcement.

The firm also reclassified Greece from developed to emerging market status, in moves which echoed those made by rival MSCI in June.

However, unlike MSCI, S&P Dow Jones has decided to maintain Morocco’s status as an emerging market. Bahrain, Kuwait and Oman will remain frontier markets, while Saudi Arabia will continue to be classified as a ‘standalone market’ the company confirmed on its website.

Giving the reasons for Qatar’s promotion, S&P Dow Jones said: “The foreign ownership limit, while still viewed as below the standards of most other emerging markets, has become a point of emphasis for change in Qatar as several large companies have increased their limits to encourage further foreign investment. Continued dedication to increase the limits is an expectation from most market participants.” The firm praised the delivery versus payment (DVP) mechanism recently introduced in the country, as well as the securities lending and borrowing facilities launched by the Qatar Exchange.

On the UAE, the company added: “The current foreign ownership limit of 49% is considered satisfactory and in line with a few other countries currently designated as emerging. There is an expectation that this limit will be relaxed in the coming years. All three UAE exchanges now use DVP settlement and started to implement the new procedures of Buyer Cash Settlement for trades starting May 5, 2013.” Market-maker regulations introduced by the Emirates Securities and Commodities Authority had also been a factor in favour, it added.

The changes will come into effect in S&P Dow Jones’ annual reconstitution in September 2014.

UAE tops list in Egyptian investment in Q4

The United Arab Emirates were the largest investors from the Arab world in Egypt during the fourth quarter of the 2012/13 financial year, according to a Central Bank of Egypt report.

The Egyptian fiscal year begins on the 1st of July and concludes on the 30th of June. The fourth quarter of the financial year runs from April to June.

The UAE invested a total of $226.7m in Egypt during Q4, compared to $69.3m the previous quarter, an increase of 227%. Investment from Qatar, in stark contrast to the UAE, saw a 97% decrease during the fourth quarter, to $8.8m.

The UAE supported the Egyptian military in its campaign to overthrow Mohamed Morsi’s rule and following his removal from power, has pledged $3bn to Egypt as part of a $12bn aid package.

Qatar, meanwhile, backed Morsi when he rose to power in 2012 after the Egyptian revolution in January the previous year. The drop in investment from Qatar came just before Morsi’s Muslim Brotherhood were ousted by the military following mass protests.

Saudi Arabia was the second largest investor among Arab countries in Egypt during the same period, at $62.2m, followed by Bahrain ($41.9m) and Kuwait ($13.7m).

Saudi Arabia strongly opposed Morsi and the Muslim Brotherhood, supporting the military backed coup.

With Morsi gone, it is little wonder that investment in Egypt by Saudi Arabia and the UAE has risen, whilst Qatari investment has declined.

The report also showed that the amount of foreign direct investment (FDI) in Egypt surged 51.5% to $553.9m to a total $1.62bn in the same period.

Capital outflows saw a slight increase to $1.10bn compared to $1.08bn in the third quarter. Capital inflows also rose, to $2.73bn from $2.15bn.

Qatar sovereign wealth fund looks to increase emerging markets investment

Qatar’s sovereign wealth fund is looking to diversify its investment strategy by increasing investments in emerging markets, according to a senior executive of Credit Suisse.

The Qatar Investment Authority (QIA) is estimated to have between $100bn and $200bn in assets.

Aladdin Hangari, a senior executive at Credit Suisse and also one of the top advisers to the fund, speaking to Reuters, said: “For a sovereign wealth fund, that’s investing for future generations, it makes sense to go for assets that are income- producing and can act as a good inflation hedge for the future.

“They tend to do more in Europe and the United States because they’re more familiar with the legal framework, which makes it easier to do things. I think going forward, we’ll see them doing more in emerging markets as long as they find the right opportunities,” he said.

Hangari indicated that the fund would continue taking large minority stakes in well-established firms but might also now consider focusing more on assets like real estate, infrastructure and commodities as opposed to financial instruments.

Michal Cho, a long-serving Merrill Lynch banker, joined the wealth fund back in August as head of mergers and acquisitions, a move seen as highlighting the fund’s surge in interest in emerging markets.

QIA has the second largest stake (6.2%) in Credit Suisse. The Swiss bank has also provided advisory assistance on a number of the fund’s high profile investments.

Qatar - Perception catches up with reality

After several years as a frontier market, Qatar has been granted emerging market status. Nick Wilson, chairman of the Qatar Investment Fund, explains what this will mean for the country.

They say that perception lags reality.  Nowhere is this more evident than in perceptions of Qatar, the gulf state with the second highest GDP per capita in the world (after Luxembourg) but which has until very recently been rated as a ‘frontier market’ by investment indices.

At last, after repeated disappointments over 5 years as Qatar remained a frontier market, index provider MSCI has confirmed that Qatar and the United Arab Emirates will be reclassified as emerging market, as from May 2014.

The effects of the upgrade are already being felt. Investors in London-listed specialist fund Qatar Investment Fund Plc (QIF) saw their net asset value increase 6.71% (based on 6 June 2013 NAV of 1.1688 and 22 Aug 2013 NAV of 1.2472) on the news.  This trend is likely to endure, as new capital flows into the Qatar stock market. Estimates of the scale of the inflows vary but most observers expect to see new inflows in the region of $400m.  This, coupled with significant Qatari government investment in infrastructure ahead of the FIFA World Cup in 2022 should generate significant economic growth, and benefit investors in quoted Qatari stocks.

Foreign ownership limits

One of the reasons for the delay in reclassification was the cap on foreign share ownership for many Qatari stocks. Yet provisional new company entrants to the MSCI Emerging Markets (MSCI EM) index still have significant headroom to welcome more foreign shareholders, despite their cap on foreign share ownership.

That said there remains a misunderstanding regarding foreign ownership levels in Qatar. There are no government imposed limits on foreign ownership, but companies have had restrictions written into their articles of association.  So shareholders of companies can vote in favour of increasing foreign ownership caps.  Several have already done so and it is expected that more companies will follow suit over the coming months. The issue of the foreign ownership caps is in the early stages of being addressed and it is believed progress so far to increase the limits was a significant factor in the reclassification to emerging market status by MSCI.

There are, however, reservations in some quarters over the merits of raising foreign ownership, based on two main concerns. Some Qataris are reluctant to see increasing percentages of their companies inforeign hands and second there is the fear that short term ‘hot’ money will be attracted to the Qatar exchange leading to increased volatility.

Only time will tell how far along the foreign ownership road some companies will travel. Now that reclassification has come about, companies may feel less pressured to act.

How to get exposure to Qatar?

For emerging market funds and other international investors seeking exposure to the Qatari stocks flagged to enter the MSCI EM index next May, shares in QIF offer a good proxy for the Qatar stock market. The convenience and lower trading and custody costs involved in trading on the London Stock Exchange as against the Qatar Exchange represent a distinct commercial advantage.

The reclassification of Qatar as an emerging market brings multiple benefits to QIF:

1) The upgrade will focus attention on Qatar and the benefits that are flowing from massive government and private investment in the economy

2) New investors, previously unable or disinclined to invest in frontier markets will be attracted to the Qatar Exchange, bringing buying pressure

3) This broader range of potential investors will improve liquidity and will create more trading opportunities for the QIF’s Investment Adviser

4) Investors seeking exposure to Qatar as a new emerging market will be attracted to new company entrants into the MSCI emerging markets index, many of which are clustered in QIF’s top ten holdings:

Of the nine proposed new Qatari entrants into the MSCI EM index seven are included in the top ten holdings of QIF and these seven represent 89.8% of the proposed new Qatari company entrants on a weighted basis. Although the new entrants held by QIF only account for 64.8% of QIF’s total NAV, they account for 81.7% of the top 10 holdings.

All of which suggests that we are well placed to take advantage of the MSCI upgrade once it comes into effect in May 2014.

Qatar Investment Fund rises on healthy dividends

The Qatar Investment Fund plc (QIF)’s net asset value rose further in Q3 as it reaped the benefit of the market-leading dividends on offer in Qatar, the fund said in an update to investors.

The London-listed fund saw its NAV increase 1.2% in Q3 to US$1.1813, while the Qatar Exchange Index rose 3.6% over the quarter. So far in 2013, the fund’s NAV is a healthy 17.9% up, including dividends, beating the index’s 14.9% increase.

The Isle of Man-domiciled company, which can invest across the GCC, had 18 Qatari holdings at the end of the quarter, six in the UAE, three in Oman and one in Kuwait.

It is the high level of dividends currently available from Qatari companies that make them particularly attractive, according to the fund’s chairman Nick Wilson.

“The gulf region has a healthy regard for paying dividends, and Qatari companies in particular fully recognise that the owners of the business should be rewarded with a proper level of dividend yield,” said Wilson. “The Qatar stockmarket is forecast to yield a tasty 5.5% in dividends in 2013, the highest in MENA. This compares to 3.1% for the FTSE All Share and 1.95% for the S&P 500.”

These dividends are accompanied by relatively undemanding valuations of 11.4 times earnings for 2013, compared to a MENA average of 12.7, continued Wilson.

“Qatar has strong growth prospects with the economy estimated to grow at 6.3% in 2013, and 7.8% in 2014. The economy is diversifying away from hydrocarbons and population is rising.  Meanwhile the Qatar government has infrastructure projects planned and underway to the tune of US$260 billion.”

QIF is itself forecast to pay a 3% dividend to investors early next year.

QInvest announces new growth strategy

Qatar-based investment bank, QInvest, has unveiled its long term growth strategy.

The new strategy involves splitting the bank into three separate divisions; investment banking, principal investments and asset management.

The restructuring is designed to create a greater focus on the firm’s core product and service offers.

QInvest has also strengthened a number of significant operation areas and plans to work more closely with the company’s largest shareholder, Qatar Islamic Bank (QIB), in order to access its unique market presence and network, and its strong balance sheet.

Tamim Hamad Al-Kawari, QInvest’s chief executive officer, said: “As investment markets around the world continue to evolve, it is essential that we further develop our strategy to build on our leading regional position and focus the business on the most lucrative market opportunities.

“We want to ensure we are structured to fully support Qatar and the wider region’s international investment plans as well as ensure we are recognised as the gateway for investors looking to access Qatar’s fast growing dynamic economy.”

As part of the strategy, QInvest’s asset management team plans to work more closely with QIB to offer its client base access to QMAP funds and services.

QInvest’s Managed Account Platform (QMAP), launched earlier this year, allows the firm to offer a diverse product range for global Sharia compliant investors.

The platform offers products across multiple asset classes, including sukuk and equity funds, managed by both in-house and third party professionals.

“In 2013, we focused on and have now completed the streamlining of the business,” said Al-Kawari. “Our top-line growth strategy ensures we concentrate on those areas where we have strength and market differentiation. We have brought in a team of proven experts and specialists and scaled specific product and service areas.

“At the same time, we are working closely with QIB to create value for both institutions through our strategic partnership. We are already beginning to see the benefits of the new strategy emerge and I am confident that this will continue to deliver value for clients and shareholders in the months and years ahead,” he said.

The asset management division has already launched a range of funds with major investment managers like GAM, Edgewood Management and Eagle Capital Management.

QInvest’s reorganisation and fresh approach comes after its proposed merger with EFG-Hermes, which would have created the Arab world’s biggest investment bank, collapsed in May after failing to gain approval from the Egyptian regulatory authorities.

Profile: Afa Boran, Amwal

Vital Analysis

A meticulous approach to analytics, combined with the determination to fully understand all aspects of the companies he invests in, has enabled Afa Boran to achieve market-leading returns in his four years at Qatar’s Amwal

by Paul Golden

In common with many of his peers in Mena, Afa Boran has extensive experience of the funds industry beyond the region. Prior to joining Amwal in 2007 as lead fund manager for equity funds and now head of asset management, he was a fund manager at Shuaa Capital for three years managing a Turkey fund, having spent almost a decade in London as a sell side research analyst at Credit Suisse and Natwest Markets, during which time he was rated top investment analyst in the region on a number of occasions.

His impact on his current employers is evident from the fact that Amwal’s funds have been ranked the best performing funds in Mena on a three year rolling basis; the Qatar Gate Fund has outperformed the QE index every year for the last five years.

It is Boran’s approach that marks him out from his contemporaries. “Our main focus is on understanding the earnings prospects of companies we invest in, akin to buying the business not just the stock. We then closely monitor its performance like business owners, with tools such as our proprietary ‘profitability index’ giving us an edge in responding to changing earnings prospects before they get priced in by the market.”

This approach demands that Boran and his team devote considerable time and effort to building relationships with these companies.

“Gathering information is not an easy task in this part of the world where many companies are tightly held, either by government or private individuals. The incentive for management to talk freely to investors is much lower than in the west where ownership is typically much wider and few companies are proactive in terms of meeting investors, although this is improving.

“We are trying to understand the business, not to access non-public information. The time we spend with companies is vital and in some cases they appreciate our feedback on their progress and how they compare to other companies in the region as well as our views on economic prospects.”

Under Boran’s direction, Amwal’s asset management team is very fundamental research driven but with disciplined risk management and close monitoring of its key decision drivers. “It is a very dynamic and closely monitored approach. We buy based on long term prospects and may well hold an investment long term, but at the same time we may sell very quickly if we see the fundamentals changing.”

“We are also focused on building and maintaining a strong track record, so we can show investors that a professional and methodical approach to managing money can lead to superior and consistent performance. We view this as particularly important in managing equities, which by their nature are volatile. With luck one can show good results for a year or two, but to perform strongly year after year requires more than luck, which is where our disciplined investment process has proven successful.”

Banking on experience

He describes his team’s competitive edge as intellectual rigour combined with experience, with its three members offering a combination of strong academic background and market experience. All three have Masters degrees in finance or business and two hold CFA accreditation.

“We all have western investment banking experience, which helps greatly if you are fundamental driven. With a team like ours, analysing a business or an economy becomes much easier. When we find ourselves in an uncertain time, we just dig into analysis until we understand the outlook. This is how we manage the risk - by increasing our understanding.”

Boran describes himself as having a very analytical background, something that he has used and refined over the years. “Many hedge funds and traders in this region follow markets trends, but we are not trend followers so we often (although not always) find ourselves going against the trend. The only way I feel comfortable investing is if I have over-analysed the investment. As a result, our returns are less volatile than those of a trend-following investor and I now have a track record that gives investors assurance that I know what I am doing. We gather data to estimate company profitability ahead of the results, which helps us be on top of things and eliminates market disconnect.”

Most of the firm’s advisory clients are based in Qatar. Boran says the firm tries to manage a portion of their accounts internally, but that they are often reluctant to cede control.

“However, they are impressed with our returns and value our advice so we structure an advisory where we make recommendations and they use that information internally. The existence of very large family offices and government institutions was the motivation for establishing this service - these investor are very hands on and profit driven and in some ways we have to educate them on market volatility.”

Renewed focus on returns

Most of Amwal’s clients are institutional, but it also has a QAR30m (approximately $10m) Qatar based mutual fund that gives it some retail exposure.

The Middle East market is very returns focused, adds Boran. “Whatever the asset class, investors are always looking for better returns. After the global financial crisis there was some demand for capital protected products but that is declining now as long term investors see cost of short term protection wipes out most of returns. In todays’ low yield environment, better returns that are not too risky (in their eyes) is the key focus.”

“On a more general level, the key difference we see between Middle East investors and those in the west is that most of the individual wealth in the west is passively accumulated through salary income, which automatically gets channelled into pension funds which in turn hire asset managers to manage it. So effectively, all you have to do as an asset manager is know the channels and perform better than your competitors.

“In this part of the world, a large part of the wealth is very concentrated and entrepreneurially created, either by investing in real estate or setting up businesses. As the economies are still relatively new and there were many direct investing opportunities in this region, that was the main focus of investors. Although this is slowly changing as local investment opportunities are being exhausted and due to high oil prices, wealth continues to accumulate.”

Boran says his team is satisfied with its performance over the last three years. “Our returns are around 20% above the index and approximately 10% ahead of our closest competitor. We are value focused but we generally buy businesses that have good commercial and earnings prospects as these have more potential to surprise on the upside than a weak business surprising on the downside.”

Amwal’s key call this year was going overweight the Qatari market and some of the undervalued high beta names at the beginning of the year when it saw a major valuation discrepancy between the local market and rest of the world. “After the MSCI decision, the discount turned into a premium during which time we reduced our overweight,” he concludes. “Now it is looking more reasonable again.”

Second Qatar Exchange market could double the number of listed companies

New capital market regulations include a plan to launch a second market on the Qatar Exchange, potentially doubling the number of listed firms in five years, according to a senior official.

The Qatar Exchange (QE) currently accommodates 42 listed companies and has an aggregate market capitalisation of $144bn.

In June the MSCI upgraded both Qatar and the UAE from frontier markets to emerging market status.

Qatar will be included in the MSCI emerging market index in May next year.

Zain al Abdin Sharar, director of legal affairs and enforcement at the Qatar Financial Markets Authority (QFMA), said: “We have new rules for listing on the second market. This will be for companies that can’t meet requirements for listing on the primary market. We have amended the corporate governance code for companies listed on the main market. They will improve the disclosure requirements.”

Sharar, speaking at the Meed Qatar Banking Summit, also announced that the QFMA would soon issue new rules and regulations for financial adequacy for financial service firms.

These proposals are expected to improve market efficiency and protect it against any unforeseen circumstances.

Sharar said: “We will soon issue new M&A rules for listed companies. All listed companies will know what disclosure they should make around and M&A.

“We also are considering rules for margin trading and the listing of real estate investment funds,” he added.

As part of a drive to boost capital market activity, the Qatar Central Bank yesterday issued QR3bn ($824m) worth of government bonds in addition to a QR1bn ($275m) sukuk. The debt included three-year and five-year tranches of both conventional and Islamic bonds.

Qatar to convert $2bn Egyptian central bank deposits into bonds

Qatar has agreed to convert its $2bn deposit with the Central Bank of Egypt into bonds within a week.

In May, Egypt has converted $2.5bn worth of Qatari loans into 18-month bonds yielding 4.25% and on 1 July, has converted another $1bn into three-year bonds with yields of 3.5%.

However, last week the next round of bond conversion was thrown into doubt following comments from an Egyptian central bank official stating that Egypt would repay the $2bn within days if negotiations did not progress and the fund conversion did not succeed.

But in latest developments, Hisham Ramez, Governor of the Central Bank of Egypt, said that Doha has approved the conversion of the second and third tranches of the Qatari funds, according to Egyptian newspaper, Youm7.

Egyptian-Qatari relations have become strained in recent times due to the latter’s support for ousted Egyptian President, Mohamed Morsi and his  Muslim Brotherhood party.

During Morsi’s one year in power, Qatar donated and lent Egypt $7.5bn.