Qatar's sovereign wealth fund has increased its stake in Xstrata (>> Xstrata PLC) to just over 5 percent, potentially making it easier for commodities trader Glencore (>> Glencore International Plc) to buy the Anglo-Swiss miner.
The tiny Gulf Arab state, a keen commodities investor, is now Xstrata's third-largest shareholder behind Glencore and asset manager BlackRock IncN>, giving it exposure to a metals powerhouse after missing out on other recent deals.
Qatar has also bought stakes in luxury goods house LVMH (>> TOTAL) and oil company Total (>> TOTAL), in a recent spending spree using its natural gas riches to diversify economic risk. It also owns shares in Credit Suisse (>> Credit Suisse Group AG) and the upmarket Harrods department store.
Several major shareholders have opposed Glencore's $41 billion bid for Xstrata but bankers said Qatar would be a passive investor, unlikely to stand in the way. The deal must be backed by 75 percent of shareholders excluding Glencore.
"Getting the Qataris on board will be good for Glencore. They are not activist investors and won't be looking at gaining management influence. But they are opportunistic and won't commit a pound unless they are seeing clear benefits," said a Dubai-based banker.
Regulatory filings showed that the Qatar Investment Authority (QIA) built up its Xstrata holding, worth $2.65 billion at current prices, through stock market transactions from around 3 percent when Glencore announced its bid.
No immediate comment was available from the Qatar fund.
Glencore plans to buy Xstrata in an all-share transaction that could create a combined group worth more than 50 billion pounds ($79 billion), shaking up the industry with its biggest deal to date.
Key Xstrata shareholders including Standard Life Investments and Schroders (>> Schroders plc) are seeking better terms from Glencore.
Glencore, the world's largest diversified commodities trader, already owns 34 percent of Xstrata. A tie-up between the two has long been expected as Glencore wants to add more mines to its trading clout.
Under the terms of the transaction, Xstrata shareholders other than Glencore would hold 45 percent of the new company, to be named Glencore Xstrata International, even though Xstrata assets would comprise about 65 percent of the combined group's asset value.
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Bankers said Qatar is likely to keep building its stake.
"The cash stake is about 4.75 percent and it is the derivatives position which has seen the stake go up by 5 percent. It's not normal of Qatar to go above the 5-percent threshold...they could end up owning more," said the banker.
Another banker said that Qatar, among the richest countries in the world per capita, would likely buy more.
"These companies are on top of QIA's shopping list and the sector is very strategic...we wouldn't be surprised if this happens gradually in the coming few months," he said.
Glencore is the top Xstrata shareholder with a 33.65-percent stake, followed by BlackRock which has a 5.43 percent ownership in the miner.
Qatar's sovereign wealth fund, estimated to have assets of around $100 billion, is widely seen as the most aggressive in the world, ploughing gas dollars into a range of Western assets including automakers, prime real estate and global banks.
It is known to be an enthusiastic investor in commodities. Qatar Holding, the sovereign wealth fund's investment arm, missed out on a $1 billion investment in European Goldfields last year after the company instead agreed on a $2.4 billion takeover by Canadian group Eldorado Gold (>> Eldorado Gold)
Qatar surprised many observers by passing on the Glencore initial public offering last year as rival Abu Dhabi fund Aabar bought into the flotation.
Glencore shares have fallen 22 percent since their listing in May last year, and Xstrata shares have lost 20 percent over the same period, so Qatar's current purchase will give it a sizeable stake in the merged entity at a significant discount.
"This is typical Qatar. They prefer to be the largest minority investors and are not keen on management control. Obviously, they are seeing value in this. Qataris like commodities generally and Glencore shares have fallen off the cliff post its IPO," said the first banker.
In recent weeks, the fund has also picked up minority stakes in conglomerate Lagardere (>> LAGARDERE S.C.A.) as well as LVMH and Total.
Bankers and sovereign wealth fund experts describe the sovereign fund as an opportunistic investor, seeking favorable terms with downside protection for the cash it deploys.
(Additional reporting by Mirna Sleima; Writing by Sitaraman Shankar; Editing by Anna Willard)
By Dinesh Nair