The small but wealthy Persian Gulf of Qatar, a country of only 1.7 million people, was a wildcard for the World Cup 2022....
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The small but wealthy Persian Gulf of Qatar, a country of only 1.7 million people, was a wildcard for the World Cup 2022. But, with it's innovative, environmentally-friendly bid it won in December 2010. Allegations of bribery have ensued and in May 2011 FIFA President Sepp Blatter refused to rule out a revote, but this has not halted the excitement or preparations.
Contractors in the Middle East must have thought their Christmas had come early when Qatar received the award with estimates on spending for new infrastructure, hotels and 12 eco-friendly stadiums ranging from $55 to $100 billion." Obviously 2022 is going to have a huge impact here not only in terms of building the stadiums but also on the huge amount that is going to be spent on infrastructure projects. The estimates range quite widely but about a $100 billion is the figure that's going to be spent," says one lawyer. This generous boon comes as a welcome reprieve for the construction industry in the GCC (Gulf Co-Operation Council) region after Dubai's collapse.
An immediate positive impact on the country has been the resurrection of projects which had been delayed with the Government weary of ploughing reserves in to infrastructure in globally uncertain times. "A lot of the large major projects; the Bahrain Causeway, the subsea tunnel, the rail projects, they were all being put on hold or not pushed through by their government sponsors, while the decision was being made. After winning there is a race to prepare for 2022," says one partner.
Development groups will not be the only ones to prosper from the wealth of new projects. "There's going to be an awful lot of activity, for lawyers as well, over next two years," says one partner. Although, you could not call it an influx, established firms note the legal market is growing more crowded in Doha with multibillion dollar contracts awaiting tender and a dramatic rise in corporate lending expected: "The legal market here is relatively small but it's expanding here in terms of participants. In the last 12 months a number of new entrants are here, Clifford Chance just got their licence, A&O just got theirs over a year ago. There's increased interest in the market because of the growth of Qatar 2022 announcement," observes one partner from a long-standing international firm in the country.
Lawyers are not the only ones looking to gain a foothold in the market. With the anticipation of so much investment, firms note an increase in instructions from foreign investors and companies seeking to either buy shares in Qatari or regional companies or strike up joint ventures. "There are some investors looking in, particularly in the construction firms there's been quite a strong level of interest," says one lawyer.
A further development that will be of interest to investors saw the government introduce a 10% tax on all joint ventures, whereas before it was a sliding scale up to 35%. "It's good that it's a simple and pretty low regime," observes one lawyer.
Outside of the mêlée surrounding football's largest tournament, there has not been an abundance of transactional activity. In the energy sector projects have trailed off, although there are still exceptions such as the $8.6 billion Barzan gas project.
Equity capital markets work has been more bountiful, in the preliminary stages at least. "We're preparing two right now there are three deals in the pipeline, although there may only have been one IPO in Qatar last year there is interest," says one lawyer. Another agrees but says regional unrest has hindered the success of these issues: "We saw a couple of IPOs but they have been put on hold or cancelled, the sentiment isn't right," says the lawyer.
The QFMA (Qatar Financial Market Authority) is doing it's best to stimulate activity, introducing a more formal regime to give protection to issuers. "The QFMA are doing a lot to encourage local companies to list. In November last year [2010] it issued the new listing rules which have set out more clearly the listing for IPOs. The stock exchange brought out a new rulebook," explains one partner. The QFMA has also sold a 20% stake in the exchange to Euronex: "They using their (Euronex's) expertise to enhance the IT and all that jazz," explains one lawyer.
One issue that prevents certain funds from investing on Qatar's exchange is that the country remains under frontier market status, which restricts foreign funds managers from investing in it. This was due for review in June but the decision was delayed until December by index provider MSCI, meaning that the earliest date it could be upgraded is November 2012. Qatar's restrictive foreign ownership rules are the principle issue: "The foreign ownership laws are the main hurdle. At the moment the maximum aggregate share holding is 25%, it is possible to increase that to 49%, but that has been one of the blockers," says one lawyer.
Another major development is the Qatar Central Banks (QCB) decision to demand conventional institutions desist in all Islamic operations by the end of 2011. "There were various reasons given; difficulty in calculating balance requirements and regulatory balance sheets. That caused a bit of a kerfuffle at the time," explains one lawyer. Others regard the decision by the QCB as an attempt to consolidate in the overbanked country, which currently has 18 and an opportunity to deal with distressed assets that several hold before they cause issues. "It is a chance to merge operations and it's a nice way to deal with some of less shining examples of investments that are still on the balance sheets of some of the banks," says one lawyer.
Conventional banks are left with few options: sell; rundown existing operations; or, convert Islamic products to conventional. "The Islamic banks are all looking for opportunities to acquire that business. There is legal work but it's not a huge bonanza that we thought it would be I think quite a few are letting their business run off and getting people to convert," says one lawyer.
On the corporate side the expected increase in activity the $3.3 billion merger of two Qatari shipping companies in June 2010 was expected to instigate never materialised. "There was the proposed Alkalgie bank and International Bank of Qatar but it was announced that deal would not proceed because the parties could not agree on valuation," says one partner. The regional turmoil is cited as the principle dampener of M&A activity and lawyers say that prior to February Qatari's were showing interest internally and in the wider region. "On the outbound side, at beginning of the year there was quite a lot of interest. Qataris were looking at regional deals and as far as Asia and the States but the last couple of months they seem to of been skittish."
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