Middle East sovereign investors target infrastructure projects

Construction works of the Hong Kong section of Guangzhou Shenzhen Hong Kong express rail link. Sovereign investors are being attracted by infrastructure projects in Asia. (Shutterstock)
Updated 09 July 2018
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Middle East sovereign investors target infrastructure projects

LONDON: While equities remain at the center of most global sovereign investors’ portfolios, a survey conducted by asset manager Invesco found that average allocation to alternatives has doubled in the past five years, reaching a high of 20 percent last year.
In the Middle East, sovereign investors increased their allocations into private credit by 44 percent and infrastructure by 33 percent over the past three years. Exposure to private equity and real estate increased at a lesser rate, the survey published on Monday found.
The study was based on face-to-face meetings with 126 individual sovereign investors and central bank reserve managers from around the world, representing $17 trillion-worth of assets.
“Private markets are favored by many sovereign investors, thanks to the long term and illiquid nature of many asset classes within this market. However, investing in private markets has been a consistent challenge for sovereign investors, and as a result many remain underweight,” said Zainab Kufaishi, head of institutional sales for Middle East and Africa at Invesco.
“Good opportunities are seen in infrastructure and in private credit, but respondents are seeing fewer attractive opportunities in private equity because of increased competition for assets and bidding up of prices. Over three fifths (61 percent) of respondents raised concern that private equity is becoming over-valued.”

 

The dominance of equities in investors’ portfolios has been growing over the past few years, with the average global investor allocation to equities rising to 33 percent this year from 29 percent in 2017.
Equity returns stand at 8.7 percent, according to survey respondents, compared to 9.4 percent in 2017 and 4.1 percent in 2016.
The survey found that nearly half of all sovereign investors are now incrementally or materially overweight in equities.
More than a third said they were considering whether to reduce equity weightings in the medium term, with plans to make “small” rather than “significant” cuts.
Investors cited concerns about a possible trade war and other geopolitical risks as potential risks to the future of the equities markets.
The Invesco survey also found that sovereigns are looking increasingly at new regions rather than maintaining a traditional bias towards their home markets.
Asia Pacific has become an attractive region for infrastructure investment, due to large projects such as the Belt and Road initiative — a transport and infrastructure project designed to improve trade links — to China. Around 64 percent of sovereigns surveyed said that this region presented opportunities.
Under half (41 percent) of investors said North America was an attractive region for investors, and that the market’s appeal would depend on US President Donald Trump implementing his infrastructure plans.

FASTFACTS

Middle Eastern sovereign investors have ramped up their exposure to private credit and infrastructure in the last three years, a survey found, reflecting a wider global trend as investors increase their allocation to alternatives.


Clariant and SABIC deepen ties under new partnership

Updated 2 min 17 sec ago
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Clariant and SABIC deepen ties under new partnership

  • Clariant, SABIC to merge high-performance materials operations
  • SABIC executive to become Clariant CEO

ZURICH: Switzerland’s Clariant and new anchor shareholder Saudi Basic Industries Corp. (SABIC) will merge their high-performance materials businesses and install a SABIC manager as head of the group as they strengthen their partnership.
The new joint venture and governance accord announced on Tuesday mark the first concrete signs of how SABIC’s arrival as a white knight in January is reshaping the speciality chemicals group that US activists had targeted.
The partners had agreed that SABIC would not take over Clariant but could boost the 24.99 percent stake it bought from the activists to rescue Clariant from a hostile takeover threat, Clariant CEO Hariolf Kottmann told a news conference.
Reuters reported in June that SABIC, the world’s fourth-largest chemicals maker, was considering increasing its holding in Clariant and pursuing joint ventures.
Clariant shares were up 6.1 percent at 0915 GMT, leading the European chemical sector index, after news of the revamp that will let Clariant focus on higher-value speciality chemicals. SABIC shares gained 0.7 percent.
SABIC Specialties Executive Vice President Ernesto Occhiello, 58, will take over next month as chief executive. Kottmann, who is 62 and has been CEO for 10 years, will now become chairman.
Clariant and US group Huntsman last Ocotber abandoned plans for a $20 billion merger, a win for activist investors who fought the deal for months on the grounds it would destroy shareholder value.
Clariant will hold a majority stake in the new business, which combines its Additives and high-value Masterbatches divisions with parts of SABIC’s Specialties business.
Clariant will divest the remaining Plastics & Coatings business by 2020, it said in a statement.
By 2021, the group aims to generate annual sales of around 9 billion Swiss francs ($9.36 billion), compared with 6.38 billion in 2017, and a margin on earnings before interest, tax, depreciation and amortization (EBITDA) of around 20 percent.
Kottmann said it was important to gain critical mass in specialty chemicals and said the $15 billion in sales the company could have achieved if it had merged with Huntsman was “still the number which is important for us.”
“The move now is a first move into this direction. I’m sure that we will have more opportunities in the years to come to further go into higher value specialities and to strengthen our business areas, for example care chemicals or catalysis or natural resources,” Kottmann said.
Middle Eastern companies have been eager to expand into advanced downstream chemicals operations like the catalysts that Clariant produces to help speed up processes at chemicals plants.
Saudi state-owned oil company Saudi Aramco in 2015 bought half the synthetic rubber business of Germany’s Lanxess.
The moves show that Saudi companies are increasingly trying to raise their influence outside the Kingdom as part of the ambitious Vision 2030 plan to diversify the country’s economy from oil.
The group said combining operations was set to generate annual synergies of around 100 million Swiss francs over three years from the deal’s closing.
Under the governance agreement, Clariant’s board of directors will expand to 12 members from 10 now, of which four will be nominated by SABIC. Shareholders must approve the change at a meeting set for Oct. 16.