Qatar Airways to take stake in biggest South American carrier LatAm

Qatar Airways plans to buy up to 10 per cent of Latam Airlines' shares through a capital increase as the Gulf carrier continues its acquisition prowl.

The Chile-based airline is seeking to hold an extraordinary shareholders meeting by September 2 to propose the US$613 million capital increase at $10 a share, the two carriers said on Tuesday.

Qatar Airways’ investment foray into South America follows its acquisition of a 15 per cent stake in IAG Group, the parent company of British Airways and the Spanish carrier Iberia.

“As a leading airline in Latin America and key member of Oneworld, this investment provides potential opportunities for Qatar Airways’ global network, alongside our successful investment in IAG,” said Akbar Al Baker, the chief executive of Qatar Airways.

Qatar Airways, the second biggest Gulf airline in terms of passengers, is also considering acquiring a 25 to 49 per cent stake in the Moroccan flag carrier, Royal Air Maroc.

Mr Al Baker envisions turning the Casablanca base of Royal Air Maroc into a hub that connects north and west Africa.

“Qatar’s investment strategy is to invest in airlines which complement its own network development and which it regards as well managed,” said John Strickland, the aviation consultant. “Latam is the largest grouping in Latin America and complements Qatar’s plans to develop into this continent.”

Will Horton, the senior analyst at the Centre for Aviation (Capa) consultancy, said the stake gives further indications of Qatar’s global ambitions.

“The investment might help Qatar grow in markets where Latam has a presence. This includes new routes – maybe Lima, with Santiago already announced – and strengthening Qatar’s presence in São Paulo and Rio. But it is not clear an equity investment would be necessary to facilitate this partnership,” Mr Horton said.

Etihad Airways, the third-largest Gulf airline in terms of passenger numbers, has minority stakes in seven airlines, including India's Jet Airways, Air Serbia and Alitalia.

Qatar Airways reported for the first time its financial results on Monday. The airline’s net profit increased more than four-fold to 1.6 billion Qatari riyals (Dh1.6bn) in the financial year that ended in March as the airline cut costs and expanded routes.

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“The only thing we need is to know that we have faith. Faith and hope in our own dreams. The belief that, when we keep going we’re going to find our way. That’s all we got.”

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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