Crowning glory: Middle Eastern sovereigns keep pouring into European ECM

Data Insight ECM Pulse 8 November

Crowning glory: Middle Eastern sovereigns keep pouring into European ECM

Fuelled by strong oil prices, Gulf sovereign wealth investors are set to continue driving European equity capital markets activity

Their presence has not gone unnoticed in the sparse 2022 European equity scene. In September Saudi Arabia’s sovereign wealth fund PIF cornerstoned the USD 660m right issue of UK carmarker Aston Martin [LON:AML]. Porsche’s [ETR:P911] mega EUR 9.4bn IPO followed shortly after, propped by Qatar’s QIA.

Busy with their own flurry of regional Gulf deals, Middle Eastern investors are not just writing cheques without abandon, advisers say. Selectivity and brand selection is high, as local sovereign investors grow in sophistication, with a long-term mindset.

By participating in equity capital markets deals, Gulf investors are taking major stakes in historic European names. While the PIF investment in Aston was a far smaller commitment in terms of value, consisting of a GBP 78m investment to take a 16.7% share stake in the company and then subsequently committing to that stake in a GBP 576m rights issue, it was deemed by sources at the time to be crucial in securing the future of the troubled British car company.

Qatar’s QIA also bought a huge EUR 1.88bn slice of Porsche’s EUR 9bn IPO. Demand for the deal was so high towards the end that it likely did not hinge on the size of the Qatari investment, but undoubtedly generated early momentum, sources said at the time.

QIA’s investment was followed by a EUR 300m commitment from Abu Dhabi’s ADQ alongside Norway’s Norges sovereign wealth fund and US investor T.Rowe Price.

These deals have been followed on by the announcement at the end of October that Saudi National Bank, majority owned by the Kingdom of Saudi Arabia, will invest CHF 1.5bn in the turnaround of Credit Suisse.

A source close to the deal said that SNB had been hugely supportive of the deal, both privately and publicly, through media appearances with Chairman Ammar Alkhudairy calling the Swiss lender’s shares a ‘steal’ on US station CNBC. The source credited that support with generating early support among other investors for CS’s turnaround plan.

Growing Influence 

Cash pouring in from rising oil revenues has been the main driver of activity from sovereign wealth and government entities in European ECM.

“SWFs and government entities have been investing globally from long past in order to diversify their investment book,” said Faisal Hassan, chief investment officer at Al Mal Capital. “I think this will continue as GCC continue to get revenue and liquidity from oil prices and they invest in both oil and non-oil sector inwards as well as internationally,” he added.

Despite the growth in capital allocation, investments will remain highly targeted with a high-quality bar, a source close to a large regional sovereign wealth fund said.

Both Porsche and Aston, while different in their corporate stories, benefit from a luxury appeal around their brands as heritage automotive manufacturers. Credit Suisse, while also troubled, remains a prestige name within European and global banking.

The ECM Pulse recently reported that bankers are now positioning for a potential IPO of Italian car manufacturer Lamborghini, also owned by Porsche parent VW [ETR:VOW3], and that remains a brand that would appeal to several sovereign investors in the region, said the SWF source when asked about a potential listing.

These investors are also staffing up with ECM and equity experts to lead their global investment strategy, the same source added.

This news service reported in October that Morgan Stanley’s former managing director for EMEA equity solutions, Gautier Martin-Regnier, was set to join QIA as global head of capital markets, starting in November.

Two-way street

Banks are increasingly taking note of the importance of Middle Eastern sovereigns in European deals. At the beginning of the year, most were focused on winning places on regional deal syndicates and showcasing their ability to bring European investors to large regional IPOs.

But now there is a two-way flow with banks eager to show European clients that they can access the largest sovereign buysiders in the Gulf.

The source close to Credit Suisse’s rights issue said long-term Middle Eastern investors can sometimes take months to come to a decision to cornerstone a deal so it is highly beneficial to have strong connections in the region which might expedite the process.

“Everyone now is trying to build these investor relationships in the region,” he said.

With cash to splash, Middle Eastern sovereign investors are here to stay.

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