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Qatar Exchange top venue for Gulf M&A

The proposed merger of Al-Khalij Commercial Bank with International Bank of Qatar ( IBQ ) is keeping the focus of regional mergers and acquisitions (M&A) activity trained on Qatar. The deal flow in Doha has remained constant even as much-heralded consolidations in other regional markets have failed to materialise.

Market watchers point out that there has been little activity in Dubai, where the real estate and banking sectors were widely expected to witness mergers in the wake of the economic downturn. Some entities looking to merge need to repair their balance sheets first, market watchers say.

And Kuwait too has not seen the wave of consolidations expected among investment companies following the high profile debt restructurings at Global Investment House and The Investment Dar.

Saudi Arabia remains a vibrant market for private M&A but large transactions involving locally-listed companies are scarce.

The acquisition by Saudi Basic Industries Corporation of GE Plastics is a notable exception. But that $11.6 billion (Dh42.57bn) buy was not recent being completed in 2007. In contrast, M&A activity among companies listed on the Qatar Exchange continues. The Al-Khaliji/ IBQ merger follows that of Qatar Technical Inspection with Qatar Fuel Company that closed in early June. That came on the heels of the merger of Barwa Real Estate Development Company with Qatar Real Estate Investment Company ( QREIC ), which closed in May, and Qatar Shipping Company with Qatar Navigation .

And there is speculation that the introduction of commercial bank brokerages will prompt the consolidation of local brokerages, with Dlala Holding Company subject to takeover rumours earlier in the year.

Latham & Watkins partner Nicholas O'Keefe points out that a number of transactions in Qatar have been government-initiated, which has encouraged deal flow. A recent amendment to the commercial companies law has also facilitated deal activity, he says.

Government involvement, the small size of the Qatari market, which can reduce the number of stakeholders involved in a transaction, and increased regulatory flexibility means merger decisions can be taken more quickly, Linklaters partner Scott Campbell says. Many regional deals involving publicly-listed companies have been conducted through a share swap, which can be easier in Qatar than in some other regional jurisdictions, he notes.

And even in terms of overseas activity, Qatari companies appear to be busier than their regional counterparts. Barwa announced on June 17 that it has purchased Park House in London for $375m. This follows the acquisition by the Qatar Investment Authority (QIA) of retail landmark Harrods for $2.2bn in May. The QIA is reported to be in talks to buy a stake in The Savoy Hotel in London and is also rumoured to be eying increasing its stake in Songbird Estates, the owner of London's Canary Wharf. QREIC bought the US embassy on Grosvenor Square last November.

Previously, it was government-owned investment funds in Dubai that were expected to lead the pack in overseas M&A by selling assets. However, one market observer notes that price remains a hurdle and facing disappointing valuations, funds have sought to refinance their liabilities rather than sell. Istithmar World postponed the sale of its stake in Inchcape Shipping Services in June due to price considerations, according to reports.

By Vicky Kapur

© Emirates Business 24/7 2010