Chinese companies and asset managers are looking more
closely to the Middle East in their quest to expand and diversify.
Chinese resources companies and financial players have been expanding into the
Middle East for a while now, said Lawrence Chia, Hong Kong-based partner at
Deloitte Touche Tohmatsu, but lately "there is a concerted effort to encourage
export of capital."
Last month, Dubai International Capital LLC and Hong Kong-based First Eastern Investment Group announced plans to join
forces and launch a new fund, China Dubai Capital.The US$1 billion fund is to
focus on buying into Chinese companies that have potential to expand into the
Middle East and eventually list on the Dubai Financial Market.
"We're early believers of the inevitable reconnection of the silk road," said
Victor Chu, managing director of First Eastern. "All the macrodynamics are very
compelling. The Gulf is looking back east and China is a growing economy. There
are lots of strategic fits."
While the flow of capital from the Middle East to China and elsewhere in Asia
isn't a new trend - there's now also a definite push to export Chinese capital.
In recent years, Huawei Technologies
, Haier Group and ZTE Corp. have all made inroads in the region. The first 3G
mobile network built in the United Arab Emirates was built by
Huawei and ZTE have also snapped up market share in Saudi Arabia.
Looking to capitalize on flow of capital, Christophe Lee, chief executive
officer of SHK Fund Management Ltd., the alternative investments arm of Hong
Kong-based Sun Hung Kai Financial, said he got inspired to launch a Middle East
North Africa hedge fund after a visit to the region last year. The firm has been
talking to Middle East firms to help manage the new fund.
Similarly, mulling the growing ties between the two regions, Jade Invest,a fund
of private equity funds focused exclusively on China, made a conscious effort to
approach investors in the Middle East. About half the firm's investor base now
hails from the region.
One of the advantages of having such an investor base is the potential that
Middle Eastern investors can help portfolio companies to find strategic partners
in the region, Managing Director Jonas Lindblad said.
Jade Invest stays on the lookout for potential matches, said Lindblad, and the
firm's investors have been helpful on more than one occasion - offering
opportunities to portfolio companies.
In one instance, a Chinese heavy construction equipment company that had already
successfully expanded into India was looking for a way into the Middle East. The
firm was able to pair up the company with a distributor in the Gulf - a
conglomerate that was also an investor.
"As a next step, most Chinese companies would not jump directly into European or
American markets. They want another market that's as close to their own as
possible so they start to focus on other emerging markets like India and the
Middle East," Lindblad said.
Industry observers note that Asian companies, including Chinese, are well
positioned to help meet the Gulf's massive infrastructure needs, which have been
estimated to require more than US$500 billion in the next few years.
China Dubai Capital's new US$1 billion fund expects to provide capital to
Chinese companies, particularly in the building materials, engineering design
and construction sectors helping them to pursue opportunities in the Gulf
region. First Eastern's Chu said the firm isn't targeting large Chinese
companies that are already in the Gulf in a big way but rather medium-sized
Chu, who started visiting the Middle East in 1992, sees Chinese companies
listing in Dubai or other Middle East markets before long.
There are more than 10 million companies in China of which 1%, or 100,000, have
the potential to be listed anywhere in the world, he said. Initial public
offerings in Hong Kong and New York are typically reserved for the biggest
companies, while smaller companies go to Singapore.
But "there's room for another international market to contribute to this
process," Chu said.
Chu has great faith in the Borse DubaiBorse Dubai Ltd., Dubai's stock exchange,
which currently has alliances with Nasdaq as well as Stockholm-based OMX AB. Chu
sees this leading to more multiple listings as well as more listings in Dubai.
But not everyone sees Chinese companies listing in the Middle East anytime soon.
"What matters to get better valuation is which capital market understands a
company better. At the moment, Hong Kong understands Chinese companies much
better," said Chia.
Also, while the opportunities are there, there are bound to be hiccups along the
Bahrain-based Shamil BankShamil Bank raised a US$100 million Shariah-compliant
China real estate fund in Jan. 2006. Despite the fanfare of being the first of
its kind, the fund failed to make any investments and the bank returned the
money to investors.
Shamil BankShamil Bank did not respond to requests to comment.
-By Ellen Sheng,
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