-- Most SWFs Take Lower Profile Role
-- Qatar Takes Minority Stakes in Several European Companies
DOHA (Zawya Dow Jones)-- The decision by Qatar Holding to oppose
the terms of Glencore International PLC's merger with Xstrata marks
an unusual shift to an activist shareholder role for the oil-rich
sovereign wealth fund.
In a surprise announcement late Tuesday, Qatar Holding urged
Glencore to sweeten the terms for its proposed merger to 3.25 of
its shares per Xstrata share, rather than the 2.8 on offer. The
Gulf state, which is Xstrata's second largest shareholder, says it
still supports the proposed merger that would create and mining
powerhouse with a market capitalization of about $56 billion.
Analysts and bankers familiar with Qatar Holding said it's the
first time the sovereign wealth fund has taken such an activist
role as an investor. It marks a break with the traditional
investing strategy of the Qataris and other oil-rich sovereign
wealth funds, which normally take a deliberately back-seat role in
order to avoid provoking political opposition in the countries in
which they invest.
The Abu Dhabi Investment Authority and the Kuwait Investment
Authority, for example, usually abstain from exercising voting
rights in the companies in which they invest.
In recent months, Qatar has stepped up its investments in large
European companies, using its vast gas wealth to accumulate a
growing list of minority stakes in firms like Total SA (TOT), Royal
Dutch Shell PLC (RDSA) and Siemens AG (SI).
By opposing the terms of the Glencore-Xstrata merger "they are
trying to be like any other investor -- it just happens their
capital is sovereign," said Rachel Ziemba, an analyst at Roubini
Economics in London who follows sovereign wealth funds. "They're
trying to get the most value and improve their return."
The move puts pressure on commodities trader Glencore to improve
its terms for the merger, while also raising the specter of the
deal collapsing if just over 16% of Xstrata shareholders vote
against the deal. Qatar is effectively joining forces with other
Xstrata shareholders such as Fidelity, Standard Life Investments
and Schroder Investment Management who have said the current merger
terms undervalues Xstrata. The three investment funds own nearly 3%
of Xstrata, while Qatar holds close to 11%.
But some bankers and analysts played down the likelihood of
Qatar adopting an activist role with its other shareholdings,
saying the fund sees an unusual opportunity to maximize the return
on its investment with Xstrata. Qatar Holding lacks the management
expertise to wield influence in a large number of overseas
companies, they said.
The wealthy emirate, which has invested heavily in the broader
commodities sector this year, has been steadily building its stake
in Xstrata over recent weeks.
"It's rational and logical step by Qatar," said one banker close
to the fund, who asked not to be identified. "If you go shopping,
you ask for a discount."
Another banker with knowledge of Qatar Holding said it was
unlikely Qatar would block the deal if Glencore didn't agree to its
3.25 share ratio recommendation, with the Gulf state probably happy
to back a compromise offer of three Glencore shares for every one
of Xstrata's.
"I suspect this is posturing and that they'll reach some kind of
compromise in the middle," said this banker.
A collapse of the deal would likely hit Xstrata's share price,
which would be damaging for the Anglo-Swiss miner's shareholders
and for Qatar, suggesting a compromise is likely.
"It would make Qatar look silly and they would want to avoid
that," said the banker if the merger falls apart. "If anything
Glencore has got the least to lose; they just walk away, but
Xstrata's share price could tank for period of time and who suffers
from that?"
-By Alex Delmar-Morgan, Dow Jones Newswires; +974 6659 9818;
alex.delmar-morgan@dowjones.com
