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Saudis may start buying real stuff in a big way instead of Treasuries
Via NY Transfer News Collective * All the News that Doesn't Fit
Saudis may start buying real stuff in a big way instead of Treasuries
Financial Times via GATA - Dec 21, 2007
http://www.ft.com/cms/s/0/412752ae-afa4-11dc-b874-0000779fd2ac.html
Saudis Plan Huge Sovereign Wealth Fund
By Henny Sender, David Wighton, and Sundeep Tucker
Saudi Arabia plans to establish a sovereign wealth fund that is
expected to dwarf Abu Dhabi's $900 billion and become the largest
in the world.
The new fund will be a formidable rival for other government-owned
investment funds in the Middle East and Asia, which are playing an
increasingly active role in channelling capital to Western companies,
particularly financial companies hard hit by the US mortgage meltdown.
News of the Saudi plan comes as Temasek of Singa****e is in "preliminary"
talks with Merrill Lynch concerning a multibillion-dollar stake in
the ailing investment bank, according to a person familiar with the
matter.
"Merrill and Temasek have been talking for a while about this,
although there are no indications that a deal is imminent," the
person said. Temasek was also approached as a possible investor in
UBS and Morgan Stanley, although the investment banks later struck
deals with Government of Singa****e Investment Corp. and China
Investment Corp. respectively, the person said.
These stakes have avoided a serious political backlash but potential
investments from the Saudis are likely to be subject to greater
scrutiny.
The effort is likely to be spearheaded by Saudi Arabiabs Public
Investment Fund, which has a mandate to invest only internally.
Previously, the Saudis' oil wealth had gone partly to the kingdom's
central bank, the Saudi Arabian Monetary Authority, and partly into
the coffers of the ruling family.
While the balance sheet of SAMA is public information, bankers say
the figures capture only a small percentage of the total wealth of
the country. The myriad investment vehicles of the various members
of the royal family have never been transparent.
Until now, SAMA's investment policy has been conservative and largely
limited to investment in bonds, especially US Treasuries, and shares.
That contrasts with the mandate of its peers in the Gulf, which is
increasingly geared to higher returns for when oil runs out, by
investing in alternative assets such as private equity and hedge
funds.
That emphasis has lately yielded to a focus on buying major stakes
in troubled financial firms on both sides of the Atlantic in the
wake of the subprime mortgage meltdown.
In contrast to its neighbours, Saudi Arabia has expanded its spending,
and next year's budget includes ambitious infrastructure projects.
King Abdullah, Saudi Arabia's ruler, is believed to be a key sponsor
of the investment initiative.
People close to the situation said Merrill's strategy was being
driven from New York, giving John Thain, who succeeded Stan O'Neal
as chairman and chief executive this month, an early chance to stamp
his mark on the bank.
However, Bill McDonough, a former president of the New York Federal
Reserve, is also expected to play a key role in the talks. He is
one of the 11 luminaries on Temasek's international advisory panel,
which also includes David Bonderman, the founder of TPG, and Ratan
Tata, the Indian industrialist.
Mr McDonough is also an influential figure at Merrill Lynch, having
joined the bank last year as vice-chairman and special adviser to
the chairman.
In October Merrill announced $8.4 billion of writedowns on
mortgage-related investments and cor****ate loans, and the departure
of Stan O'Neal, its long-serving chief executive.
Some analysts predict that Merrill will announce an additional $8bn
writedown when it unveils its fourth-quarter results in mid-January.
The US bank's stock price has nearly halved this year, cutting its
market capitalisation to about $47 billion. Dealmakers believe that
Merrill would be comfortable with Temasek taking a stake of around
10 per cent, should a deal materialise.
Merrill Lynch and Temasek declined to comment on Friday.
Morgan Stanley announced this week that it is to receive a $5 billion
capital injection from China Investment Cor****ation, having disclosed
a total writedown in the fourth quarter of $9.4 billion after a
disastrous subprime bet.
Last week UBS took nearly $10 billion from the Government of Singa****e
Investment Corp, a sister sovereign wealth fund of Temasek, while
Citigroup received $7.5 billion last month from the Abu Dhabi
Investment Authority.
The deals have underlined the growing im****tance of sovereign wealth
funds in the Middle East and Asia, and their increasingly bold moves
to take advantage of the need for capital among western institutions.
The three deals have yet to be endorsed or scrutinised by shareholders
of the investment banks. The Financial Times re****ted on Friday
that UBS is facing a shareholder revolt over its planned
re-capitalisation deal with GIC and a mystery investor based in Saudi
Arabia.
*
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