AN investment banker in Spain admits that “this is a good time” for opportunists and that many entities, such as the Saudi Arabian sovereign wealth fund, have already taken advantage of the low-price points.
Despite the measures implemented by the European Commission to safeguard non-EU investment, sovereign funds from Arab petro-monarchies, so-called vulture funds, and Chinese state-owned companies are already probing Europe for opportunities to buy assets, as prices have plummeted due to the economic crisis caused by the coronavirus.
The most active have been Saudi investors, as their sovereign wealth fund has already invested around €1 billion in four major European oil companies (the Dutch Shell, the French Total, the Norwegian Equinor and the Italian Eni), as reported by The Wall Street Journal a few days ago.
On Thursday, the Financial Times reported that they had also invested in Repsol, the Spanish oil company, in ‘recent weeks.’ This company forms part of the strategic sector that the government wanted to protect from possible hostile offers after the deceleration of the State of Alarm. The European Commission also urged member states to take all possible measures to preserve their assets and avoid strategic investment from outside the EU.
In Spain, the government suspended by decree the liberalisation regime of certain foreign direct investments, which requires prior authorisation by the state for investments greater than 10 per cent or that allow an exercise of control over companies within a certain sector, such as oil.
Subsequently, a simplified regime for approval has been established for investments when it is proved that there was a prior agreement between the parties with a fixed price, and for operations between one and five million, all whilst maintaining the 10 per cent limit.
Saudi Arabian Interests
The Saudi fund has carried out these investments with a long-term vocation and in a sector which has very poor prospects for the upcoming year. To be specific, the International Energy Agency predicts that this year the oil industry will experience the worst year of its history.
However, it is reported that their interests are not only solely tied to the oil sector. Another notable investment that this absolutist monarchy has made amidst the coronavirus crisis is the purchase of the Newcastle FC which will extend its dense network of petrodollars into the European football league.
A spokesperson for the sovereign wealth fund agreed that it is “identifying very interesting areas in sectors such as logistics, technology and telemedicine, and others that are very promising”. Recently they also purchased 8.2 per cent of the American cruise operator Carnival, which also pertains to one of the hardest hit sectors by the crisis, tourism.
The manager for Spain in a top investment bank in Europe has noted that the current medical and economic climate has created a “good opportunity” for investors to conduct operations.
“There are always opportunists, but there is nothing especially pronounced when compared to a year ago” perhaps because “it is still too soon” for operations to take place argues the financier. He also notes how pessimistic he is about the expectations for the Spanish economy on a short term-basis although he forecasts that 2021 “will be a good year.”
As the economic situation in Spain continues to deteriorate, the vulture funds which previously circulated around Spain have returned after leaving in 2015 when the economic situation began to improve.
These funds vulture funds invest in companies and properties which are preforming poorly due to market conditions and are therefore undervalued. Funds such as Fortress, Elliott, Chenavari and Anacap are now considering their return to Spain in search of new opportunities once the State of Alarm is lifted.
Investment firms with strong interests in the nation are also looking to invest after the summer in sectors such as hotels although currently their current focus is on restructuring companies which already exist in their portfolios and have suffered as a result of the pandemic.
Another foreign source of investment and interest is China, the country where the pandemic first began, which is now beginning to recover its economic activity after losses in its first quarter which caused a decrease in its GDP for the first time in 40 years.
Bloomberg has reported that Chinese firms and funds (many of them state-owned) have been increasingly inquiring upon the possibility of investing in Europe.
The US agency recalled that the valuations of publicly traded companies in the EU have plummeted with the crisis and that Chinese investors are eager to explore this without the competition of other foreign operators, who are currently too invested on managing the outbreak.
However, the current travel restrictions which have affected transport on a global level to limit the spread of the pandemic has prevented these operations from coming into fruition. Among the sectors of interest to these Chinese state-owned companies would be the automotive, energy, infrastructure and technology industries.
During this European debt crisis caused by the coronavirus pandemic, China has already taken advantage of rescuing companies such as Portuguese airlines, hotels, football clubs and electrical companies.