Monday 12 October 2015

Qatar disposes of Hochtief stake; what next for the sovereign wealth fund?

The Qataris sold a slug of French construction company Vinci last week.

Tonight, the gulf state's sovereign wealth fund decided to offload 7 million shares in Hochtief, the German construction company.

Here is what one chatty broker thinks of the most recent disposal by the Qatar Investment Authority:

MS sole books on 7m shares of Hochtief tonight on behalf of the Qatar Investment Authority (a 10.1% stake). If you have been following my output of late, you will no doubt be aware of the thread was opened post Qatar's decision to sell a stake in Vinci last week. As we learned after the fact, it seems that Qatar Holdings did participate in Glencore's recent cash call - providing a clear rationale for its decision to raise funds via the Vinci placing. Another moving part out in the market over the last few days (that is very relevant to Qatar) is the upcoming Credit Suisse rights issue. As we flagged earlier today, estimates for the CS equity raise have ranged from as low as CHF 4bn a few weeks ago to as high as CHF 8bn in the weekend press. If the cap raise comes at the top end of that range, then Qatar Holdings' 5% pro-rata would imply a CHF 500m (c.$416m) capital commitment. Without applying any discounts, 7m shares of Hochtief equates to about $650m worth of stock, so Qatar's decision to sell its holding seems like a prudent way of covering that cash call. What do Vinci and Hochtief have in common? Point (i) is that they are obviously both construction companies, but point (ii) (more relevant) is the fact that they have been amongst the fund's best performing holdings this year (Hochtief isn't quite big enough to be a top 10 holding for Qatar, hence its omission from our analysis last week). The statement released with tonight's placing confirms that the sale is part of a 'routine portfolio management' decision, which seems to confirm this theory. In terms of pricing this trade, I'm not really sure where Morgan Stanley will start. 7m shares of Hochtief represents 34 days volume, but the thin nature of its shareholder register (ACS owns 60.7%) implies the need for some new institutional demand to emerge. As of tonight's close, the stock is less than 2% away from the average analyst price target (€83.21) so it feels like the kind of trade that needs to come at a reasonably deep discount to provide a proper margin of safety.

What I'm wondering, though, is what Qatar plans to sell - or buy, even - next?

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