European bank discussing co-investments with Gulf sovereign funds

DUBAI - Reuters

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The European Bank for Reconstruction and Development is in talks with Gulf sovereign wealth funds to invest jointly, and hopes to complete a round of fund-raising for such investments by the end of this year, the bank’s president said on Feb. 13.

The multilateral bank, owned by 65 countries, aids economies by lending to companies and projects and taking equity stakes in them. In recent years it has expanded its activities beyond eastern Europe and after the Arab uprisings of 2011, began operating in Egypt, Jordan, Morocco and Tunisia.

Suma Chakrabarti said he was arguing to the Gulf sovereign funds that EBRD projects offered good commercial returns, and also that such investments made sense because of the Gulf’s growing commercial and political ties with EBRD member states as far afield as eastern Europe and Georgia.

“We are talking to a range of sovereign funds in the Gulf region,” Chakrabarti said. 

“We are having extremely positive discussions.”

He declined to name the funds, but said they were at the stage of doing due diligence on the EBRD’s business model.

Several Gulf sovereign funds are among the world’s largest, with assets in the hundreds of billions of dollars.

As low oil prices strain Gulf governments’ finances, reducing flows of new petrodollars into the funds, they are looking at ways to boost returns.

Some are already co-investing indirectly in projects with other multilateral institutions. Last month, Bahrain’s Asma Capital agreed to buy a stake in the water business of United Arab Emirates utility company Utico in a deal worth $147 million; Asma’s owners include Saudi Arabia’s Public Investment Fund and the Islamic Development Bank.

Chakrabarti said the EBRD was asking Gulf sovereign funds to invest in its Equity Participation Fund, which gives long-term institutional investors exposure to EBRD equity investments above 10 million euros ($10.6 million).

The fund was launched last year with an initial size of 350 million euros and China’s State Administration of Foreign Exchange and the State Oil Fund of Azerbaijan as cornerstone investors.

The EBRD hopes to complete a second closing of the fund later this year, Chakrabarti said, adding that sovereign funds might also choose to invest directly in projects alongside the EBRD.

The bank has now invested 5 billion euros in Egypt, Jordan, Morocco and Tunisia. Chakrabarti said it had plenty of spare capital and felt it was still only scratching the surface of commercial opportunities in those countries, so he expected growth to continue at a similar speed.

“I’d be very surprised if it doesn’t double in the next five years,” he said.

Business conditions in Egypt are improving in the wake of Cairo’s $12 billion loan deal with the International Monetary Fund in November - “businesses are complaining less to us about the foreign exchange shortage” - although the economy is still hampered by cumbersome, top-down decision-making in the government, Chakrabarti said.

The EBRD intends to expand its activities to Lebanon once the Lebanese parliament has given final approval to that country’s membership. Chakrabarti said he expected this to happen soon and that projects in Lebanon had been identified for investment.