David Cameron, Heathrow’s third runway and the Qatar Sovereign Investment Fund.

David Cameron, Heathrow’s third runway and the Qatar Sovereign Investment Fund.


Cabinet Reshuffle - all hands on deck:


Recently in the news there has been much talk over David Cameron’s controversial change of heart on the third runway at Heathrow. Speculation was charged when in September former transport Secretary Justine Greening was replaced by Patrick McLoughlin in the cabinet reshuffle. (Justine Greening was opposed to an additional runway at Heathrow)


According to the Financial Times, sources within the aviation industry believed Mr. McLloughlin’s appointment was a positive step, prompting the idea of a government u-turn on the issue. This will have buoyed BAA and itts shareholders who have been dogged in their pursuit of the third runway. But why now?


BAA Background:


BAA was purchased in June 2006 by a consortium of companies. The Consortium FGP TopCo Limited is led by –
Ferrovial, a Spanish firm specialising in infrastructure.
CDPQ (La Caisse de dépôt et placement du Québec)
GIC (the Government of Singapore).

In October 2011 Allinda Capital Partners joined the group and in August of this year so did the Qatar Investment Fund.


According to the Guardian, The Qatar investment fund purchased a 20% stake in BAA (10.9% from the Spanish company Ferrovial and 9.1% from the other partners within the consortium.) It has been suggested that Ferrovial was looking to exit the BAA franchise, a claim Ferrovial denies. However, the purchase proved to be a risky investment. The BAA franchise which cost the foreign consortium €16billion experienced a number of difficulties including new security measures and a downturn in the economy. The 20% stake cost the Qatar Investment Fund just £900million (€1.13billion), valuing BAA at €5.65billion, a loss of €10.35billion.

Cameron Tour:

In February 2011 David Cameron and his band of merry business advisors went on a whistle stop tour trying to persuade foreign investors to part with their money and invest in the UK. One of the countries he visited was Qatar (the gas and oil rich state). He met his Highness Emir (Sheikh Hamad bin Khalifa Al Thani) Qatar’s head of state and also owner of the Qatar Sovereign investment Fund and its subsidiaries.

During his visit the Prime Minister exchanged views on developments in the region and explored the scope for strengthening further bilateral co-operation in business, education, culture and sport. The visit also reflected the importance of the strategic partnership between the United Kingdom and the State of Qatar, a major emerging player in the middle-east both financially and diplomatically.


Qatar Shopping List:

Every year Qatar gives its investment fund £30 to £40billion to invest and I have no doubt that the PM wanted to ensure part of that investment went into the UK. Qatar over the last several years have established stakes in:


· Harrods (owner)


· The Shard (owner)


· No 1 Hyde Park (owner)


· The London Stock Exchange (20% stake)


· Camden Market (20% stake)


· The Olympic Village (shared ownership)


· Sainsbury’s (major investor)


· Barclays (major investor)


· Total (3% stake)


· Royal Dutch Shell (3 – 5% stake)


· Xstrata (12% stake)


· Songbird Estates (A large portion of the Canary Wharf business district (24% stake))


· Credit Suisse (owner)


· BAA (20% stake)


· Liquified Natural Gas (The UK’s Biggest Supplier)



UK Resources:

In April of this year the Financial Times ran a piece on Centrica, the owner of British Gas, who were prepared to give Qatar a stake in the business and a seat on its board in return for a 20 year gas supply deal worth up to a possible £30billion. At the moment Qatar are putting a potential deal on hold and have suggested that in the future they might buy a small stake in the company. At present Qatar are more interested in potential markets in the middle-east. They have invested $3.7billion into an Egyptian oil refinery and there is talk of Qatar eyeing up investment opportunities in Libyan oil.


(In addition, it may be worth pointing out that Iran threatening to blockade the Strait of Hormuz would have a significant impact on the UK as Qatar uses the strait to transport the liquefied gas to the UK, not to mention any potential oil imports.)


Qatar, the Middle-East and UK relations:


Relations between Qatar and The UK go back to the 1800’s. Great Britain itself was a protectorate of Qatar from 1916 until 1971 and relations between the two countries have always been close. In 1991 during the Persian Gulf War Qatar played a vital role supporting Saudi Arabia (along with the USA and UK) against Iraq. In 2003, Qatar allowed launching sites for the US/UK invasion of Iraq on their soil. It also holds a defence co-operation agreement with Saudi Arabia.


Qatar supported and recognised the Libyan transitional army as the legitimate government of Libya and they have built a reputation in the middle- east as mediators.


Qatar’s current stance towards countries in the region:


Israel – Fair relations and diplomatic connections.


Bahrain – Slightly Strained diplomatic relations


Saudi Arabia – Good diplomatic relationship and a joint defence commitment.


Egypt – Solid and stable diplomatic relationship.


Iran – Strong and stable diplomatic relationship.


Libya – Slightly Strained diplomatic relations


Turkey – A good diplomatic relationship based on co-operation.


Syria – Very strained diplomatic relationship based on the civil war currently taking place between the Syrian government and the Syrian rebels.


Iraq – Very strained diplomatic relations based on past conflict.


The UK enjoys a healthy trading relationship with Qatar and British exports to Qatar have more than doubled in the last few years. Designated as one of UK’s Trade Investment High Growth Markets, Qatar has one of the highest rates of GDP per capita in the world and a high rate of economic growth.


Qatar’s economic diversification and investment in human capital in accordance with the Qatar Vision 2030 continues to generate opportunities for UK businesses across a wide range of sectors.


Cameron’s change of heart:

Qatar bought their 20% stake in BAA in August of this year. Less then a month later the cabinet reshuffle took place and David Cameron was sending signals about a U-Turn. This decision was greeted with dismay from some Conservatives, opposition parties, and public groups. David Cameron then went on to suggest a few days later that an independent report would review all of the options on the table and that this would be ready by 2015.


One last hurdle:

The only potential competition to the third runway at Heathrow and BAA’s expansion came to light in the Independent on Sunday. A rival business consortium is looking to invest £60billion in order to build a four runway airport west of Heathrow. This would obviously provide a significant financial boost to the economy in the south east.


The aviation report will not be due until 2015, the real questions are:


· Will the rival business consortium be considered as a viable option?


· Will the consortium wait until 2015 to see if they get an opportunity to invest?


· Would it make sense to turn down the £60billion investment that a new airport would offer, for a smaller investment of an additional runway at Heathrow?


· Did David Cameron reverse his decision as a result of Qatar investment in BAA?


· What possible changes of policy may have be made in relation to Qatar investments in the UK?


· Was the decision to wait until 2015 designed to ensure there was only one main option left? Namely BAA.


Qatar is a big player for the UK in both the Middle-East and at home in the economy. With the government looking to persuade Qatar to invest more money into the UK and with the need to maintain strong diplomatic links with Qatar it would seem to be a question of when, not if, Heathrow’s third runway gets the green light.


(Please follow @redblackpaws on twitter for more updates)


All information in this blog is accurate to the best of my knowledge. Sources can be supplied upon request.