Qatar Raising $7.6 Billion to Bolster Cash Reserves

(Bloomberg) -- Qatar’s sovereign wealth fund is pledging some of its most high-profile European equity investments to raise a 7 billion euro ($7.6 billion) loan that will help the top liquefied natural gas exporter bolster its cash reserves amid plunging energy prices.

The Qatar Investment Authority is in discussions with banks including JPMorgan Chase & Co. and UBS Group AG for the margin loan backed by some of its stock holdings, according to people with knowledge of the matter who asked not to be identified because the information is private. The deal could rank as one of the biggest-ever such transactions in the region.

The fund manages about $295 billion of assets and ranks as the 11th largest globally, according to the Sovereign Wealth Fund Institute. It has holdings in some of Europe’s biggest companies including London Stock Exchange Group Plc, Volkswagen AG and Glencore Plc, data compiled by Bloomberg show.

“This is part of a broader trend of sovereign wealth funds in the region exploring the use of leverage or loans in their operations to build up returns,” said Ayham Kamel, head of Middle East and North Africa at consultancy Eurasia Group. “There is some reluctance to liquidate assets immediately in the crisis as governments fear that it would both send a negative signal and undermine the value of their holdings.”

Qatar, one of the world’s richest nations per-capita income, raised $10 billion in an April bond sale that attracted around $45 billion of orders. The Gulf monarchy has been impacted by plunging oil prices because most gas prices are closely tied to the cost of crude, which dropped more than 50% in March.

The country is also heading into its fourth year of a Saudi Arabian-led standoff that has weighed on its finances and saw the QIA inject billions of dollars into local banks shortly after it started.

Terms of the loan are still being finalized, and details such as the size could still change, the people said. Representatives for the QIA, JPMorgan and UBS declined to comment.

Bank Appetite

The participation of banks reflects a continued appetite for complex share-based trades linked to their most-prized clients. In a margin loan, a borrower secures the debt by pledging an asset with the understanding that they’d need to pay up if the value of the collateral declines. The lender can typically sell some of the collateral if the borrower is unable to provide the cash. Banks compete for these deals because of the fees associated with structured financing.

Still, such deals don’t come without risk. Banks lost more than $1 billion combined on a margin loan linked to South African retailer Steinhoff International Holdings NV, following disclosures of accounting errors.

Some of the QIA’s European equity investments have been particularly hard hit by the pandemic as lockdowns paralyzed most of the region’s economy, prompting many companies to cut profit and sales guidance. Shares in Glencore have plummeted 39% this year, while Volkswagen shares have tumbled 30%.

Trophy Assets

The QIA has been targeting more investments in the U.S. and Asia and in sectors such as technology and health care to diversify its portfolio after previously spending billions of dollars on trophy assets, such as London real estate and stakes in global companies. The fund hired former Bank of America Corp. dealmaker Ken McLaren as the head of its mergers and acquisitions team in late 2018.

A nation of about 2.8 million residents, Qatar has unveiled stimulus packages worth 75 billion riyals ($20.5 billion) -- more than 10% of gross domestic product -- to help the private sector mitigate the impact of the coronavirus outbreak. It has also allocated 3 billion riyals to local banks as guarantees to back the finance and economic sectors.

The QIA is among Persian Gulf wealth funds that have built up assets of more than $2 trillion as a cushion for when oil runs out or revenues drop. These funds could see a decline of more than $300 billion this year because of the market turmoil, according to the Institute of International Finance, the industry’s global association.

Some regional funds such as Saudi Arabia’s Public Investment Fund are using the volatility in global markets as an opportunity to broaden its global equity portfolio. The $320 billion fund has snapped up stakes in energy and entertainment firms, which have slumped due to the coronavirus crisis.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.