Qatar's $40 Billion Fund May Seek 10% Stake in EADS

Qatar's $40 billion investment fund may buy as much as 10 percent of European Aeronautic Defence & Space Co., owner of Airbus SAS, to diversify the emirate's holdings.

The state-owned Qatar Investment Authority has had talks with EADS because the company is ``under pressure'' and its shares may be undervalued after falling by a fifth over the last year, Sheikh Hamad bin Jasim bin Jaber al-Thani, the authority's chief executive officer, said in a Feb. 17 interview in the capital city Doha.

Airbus, the world's biggest planemaker, has said it will post its first-ever loss for 2006 after a two-year delay in deliveries of the superjumbo A380 led to cost overruns. The company plans to announce a cost-cutting program tomorrow. Qatar, Saudi Arabia and other Persian Gulf oil producers earned as much as $500 billion from sales last year, according to the International Monetary Fund.

``Events in the coming months will require investors to rethink, possibly positively, the future potential of EADS,'' said Will Mackie, an analyst with Mainfirst AG in London with a ``neutral'' rating on EADS shares.

Shares of Paris- and Munich-based EADS rose as much as 82 cents, or 3.3 percent, and were up 3.1 percent as of 11:06 a.m. in Paris. The stock has fallen 18 percent over the last 12 months compared with a 25 percent gain for Boeing Co., the world's second- largest maker of commercial aircraft after Airbus.

``If we think it's at the right value, we don't mind taking a stake even up to 10 percent'' in EADS, Sheikh Hamad said, declining to comment on the price at which the shares would be attractive or when the authority might start buying them. The authority has held talks with EADS officials, he said, without being more specific.

Lagardere Stake

The Qatar Investment Authority, or QIA, owns a 7 percent stake in one of EADS's core shareholders, French media company Lagardere SCA, Sheikh Hamad said. The authority is also seeking a ``strategic'' stake in U.K. grocer J Sainsbury Plc, he said.

The QIA had assets of about $40 billion in mid-2006, Pacific Investment Management Co. estimated in a report by Ramin Toloui last month. The fund itself doesn't publish information on its holdings. Qatar, owner of the world's biggest gas field and a member of the Organization of Petroleum Exporting Countries, channels surpluses from energy sales to the Doha-based QIA.

EADS has said it may sell shares this year to help fund development of its newest plane, the A350XWB. The energy-rich Gulf countries are becoming ``significant outward direct investors,'' as they seek to forge stronger ties with customers and benefit from economic growth outside their region, the United Nations said in its October World Investment Report.

Dubai Investments

Dubai's state-controlled Istithmar PJSC in October said it paid about $1 billion for a 2.7 percent stake in Standard Chartered Plc, the London-based bank that makes about two-thirds of its profit in Asia. Billionaire Saudi Prince Alwaleed bin Talal earlier this month agreed to take Four Seasons Hotels Inc. private for $3.37 billion with Microsoft Corp. Chairman Bill Gates and the Toronto-based company's chief executive officer.

If Qatar buys a substantial stake in EADs they ``would also massively endorse the struggling A350 program, since Qatar Airways is the biggest customer for the type,'' said Doug McVitie, managing director of Arran Aerospace, a Dinan, France-based consulting company.

State-owned Qatar Airways is among the customers for the A380, with four on order. The airline has pledged to buy 60 A350s, though has held back from making its commitment into a firm order.

A380 Losses

EADS has said the A380 delays will lead to total operating losses through 2010 of 4.8 billion euros ($6.3 billion). The cost of bringing the A380 into service has ballooned to about 19 billion euros from an original projection of 12 billion euros. Airbus has said the A350, which will compete with Boeing's 787 Dreamliner, will cost 11.6 billion euros to develop.

``EADS welcomes new shareholders investing in the free float,'' said Michael Hauger, spokesman for EADS, in a telephone interview yesterday. ``We never comment on talks with any particular shareholder.'' About 50 percent of the company's shares are available for trading in the market.

Qatar isn't the only investor with interest in EADS. Last year, Russian state-owned bank VTB Group bought a 5.02 percent holding after purchasing the shares on the open market.

Dubai International Capital LLC, a private equity company owned by the emirate's ruler, Sheikh Mohammed bin Rashid al- Maktoum, in November invited EADS's chief financial officer to the Gulf to discuss investment in the company.

``EADS is on the radar screen,'' Sameer al-Ansari, Dubai International's executive chairman, said in a Jan. 26 interview, declining to be more specific. Al-Ansari's mobile was switched off when called today and a call to his office wasn't answered.

Investment Goal

When buying stakes in companies, the QIA's aim ``is not to manage the company but to take benefit and try to support their financial situation,'' said Sheikh Hamad, who is also Qatar's foreign minister and a cousin of the ruling emir.

Gulf state investment agencies such as the QIA, Kuwait Investment Authority and Dubai International Capital ``are buying stakes in overseas companies where they feel they'll get exposure to economies with different growth cycles to their own,'' Standard Chartered economist Monica Malik said in a phone interview from Dubai, United Arab Emirates yesterday.

When EADS was created in July 2000 from the assets of the biggest aerospace companies in France, Germany and Spain, its key shareholders were DaimlerChrysler AG, with 30 percent, and two French shareholders: the French government, with 15 percent, and Lagardere with 15 percent.

The rules governing EADS give core shareholders control over key decisions and over choosing board members. Ownership of EADS has evolved in the last year. Lagardere and DaimlerChrysler each sold 7.5 percent stakes last April to banks and other financial institutions.

DaimlerChrysler on Feb. 9 sold a third of its remaining 22.5 percent stake in EADS for 1.5 billion euros to raise cash and reorganize the Chrysler division. DaimlerChrysler retains voting rights for the entire 22.5 percent stake. The buyers, German banks and states, were urged by the German government to purchase the shares.

source:www.bloomberg.com