SWFs should invest locally to start projects, says banker

Sovereign wealth funds and family offices should take equity stakes in local companies, according to a senior Calyon banker.

Sovereign wealth funds and family offices should take equity stakes in local companies to help kickstart planned projects worth US$750 billion across the Gulf, according to a senior Calyon banker. "The use of excess liquidity by SWFs in the region ... needs to be encouraged more, that will drive more inward investment," said Albert Momdjian, who heads Calyon's investment banking in the Middle East and Africa.

Calyon, the investment banking arm of Crédit Agricole, considered "petrodollar recycling" one of its main pillars of growth. "Local banks will not be able to fund that," he said, pointing to the planned $750bn (Dh2.8 trillion) worth of infrastructure projects in the region. Lately, regional governments have put pressure on funds to invest money within the region instead of international markets. Saudi Arabia has sovereign assets of about $438bn, up from $335bn early last year, according to estimates by RGE Monitor in New York. Abu Dhabi holds a fund of about $300bn, while Kuwait has about $210bn.

Lending has slowed across the Gulf since last autumn, when many international banks withdrew funds and cancelled their once generous credit lines following the collapse of Lehman Brothers. Local banks are too small to fill the void and face a funding gap of about $90bn between loans and deposits. Mr Momdjian said banks would be encouraged to restart lending on infrastructure projects if sovereign funds took stakes in them. He cited Saudi Arabia, where sovereign wealth funds and related institutions have started to underwrite projects.

Elsewhere, Calyon saw business opportunities in domestic and regional mergers. "We see a major push and development of M&A [mergers and acquisitions] in the region," Mr Momdjian said. The bank was "involved in several deals. This is a new business in the Middle East. The drivers [for M&A] are there and people are more receptive. I expect it to be a good and solid business year. We want to invest on it and making a big push for it."

On an international level, Calyon is encouraging foreigners to invest in the Middle East. "There will be lots of opportunities [to generate business] in that pillar," he said. Calyon advised Lafarge, the French building company, on its $15bn acquisition in December 2007 of Orascom Construction Industries' cement business, the largest foreign direct investment in the Middle East. [e-mail]