Qatar rumours lift Sainsbury stock

Deal to expand its holding in grocer would extend spree.

Qatar may continue its UK shopping spree as rumours that the emirate will increase its stake in J Sainsbury, the UK's third-largest supermarket chain, lifted its stock by 4.9 per cent yesterday. Sainsbury shares rose to 344 pence in London trading yesterday after rumours of Qatar's sovereign wealth fund raising its holding from 27 per cent, according to Bloomberg, to 29.9 per cent. The stock had risen by 2.3 per cent on Tuesday when the chatter first surfaced.

"It happens every six months," said James Monro, an analyst at Standard and Poor's in London. "Someone says 'Oh, now must be the time the Qataris want to come back in' … Why it has come out now, it's just one of those things. "People love to talk about the story, love to get behind the idea." Word of a bigger stake has cropped up several times since a Qatari investment fund bought 17 per cent of the grocer in April 2007, helping to thwart a takeover by private equity groups.

Delta Two, a fund backed by the Qatari government, raised its stake to 25 per cent two months later and then made an offer to buy the remaining 75 per cent of the company for £6 a share. The deal fell apart due to resistance from the Sainsbury family, which then owned about 18 per cent of the company. Members of the family now own about 10.6 per cent, regulatory filings show. The Qatari government later increased its share to 27 per cent.

Rumours of another deal have only intensified since Qatar started buying in the UK, fuelled by some of the world's largest natural gas reserves and one of the world's highest projected rates of GDP growth. The Qatar Investment Authority (QIA), which now controls the Sainsbury stake, made a £1.7 billion (Dh9.45bn) investment in the British banking giant Barclays in June 2008, a position it partially exited a year later for a £700m profit.

Qatar Holding, a subsidiary of the QIA, bought the department store Harrods in May for £1.5bn. And Qatari Diar, a QIA property arm, paid £440m for the US Embassy building in London's ritzy Mayfair district last year. The QIA declined to comment on the chance of a further Sainsbury purchase. QIA controls an estimated $60bn (Dh220.38bn) in assets. A spokesman for Sainsbury said the company would not comment on individual shareholders.

The QIA's interest in Sainsbury may stem partly from the supermarket giant's property holdings, valued at about £9.8bn, at a time when UK prices are at historic lows and sterling remains weak against the dollar. Qatar's currency is pegged to the dollar. "For an investor who really sees the property value, it's a pretty attractive stock," said Christopher Hogbin, an analyst at Sanford C Bernstein in London.

"I think that back in 2007 when we first saw interest in the company, the market was very focused on property. Generally now the market is not terribly focused on property."