Bahrain Business

Gulf states target UK for investment as oil prices continue to rise

July 25 - 31, 2007
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Gulf Weekly Gulf states target UK for investment as oil prices continue to rise

Less than a decade ago, many Arab Gulf states were in a perilous financial state.

Income was falling, unemployment on the rise and governments wrestling with budget deficits. Then the oil price began to rise again, steeply.
The World Bank reckons that oil income from the Middle East and north Africa has grown more than fourfold over the past decade to an estimated $547 billion in 2006.
The clearest manifestation of that huge inflow of cash has been the rise of towering new cities such as Dubai. But the tide of petrodollars is flowing outside of the region too.
In mid-June, a Qatari investment fund took a 25 per cent stake in Britain’s third largest grocer J Sainsbury.
On Thursday night, the government backed fund, Delta Two, raised the pressure on the Sainsbury family with a proposal to buy the rest of the company for 600p a share, valuing the business at £10.6 billion.
The Sainsbury dynasty, which earlier this year fought off another private equity bid, looks to have a fresh tussle on its hands. It is becoming a familiar story.
Private and government backed funds from states including Bahrain, Abu Dhabi, Kuwait, Saudi Arabia, Dubai and Qatar have been looking to build a broad portfolio of investments and reduce reliance on natural resources.
Last year Delta Two bought the Four Seasons nursing home business for £1.4 billion and was among the defeated bidders for Thames Water.
With its historical ties to the Middle East and the relative ease of doing business in London, Britain has been a favourite destination.
The Kuwait Investment Office has had a presence in the City since 1953.
What has characterised some of the more recent deals though is how high profile they are.
Arcapita from Bahrain paid £143 million for Staffordshire Water in 2004 and added the Northern Ireland electricity supplier Viridian to its portfolio in October for £1.6 billion.
Dubai Ports paid almost £4 billion for the shipping and ports company P&O last year.
In a sign of the region’s growing clout, Saudi Basic Industries agreed in May to pay $11.6 billion for General Electric’s plastics business, the largest foreign acquisition ever announced by a Gulf Arab investor.
“Underpinning all Gulf investment overseas is the need to reinvest their oil income in order to diversify their economic base,” says Richard Thompson, editor of the Middle East Economic Digest.
“In the past, the Gulf oil producers have tended to be discrete. The likes of Kuwait or Abu Dhabi would take minor stakes and be passive investors.
“Yes they have done a good job but it is still early days,” he says. “If energy prices collapse they are not fully up and running yet with mature, diversified economies. But some of them are making enormous strides.”

By David Teather







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