Qatari Greek bank bailout looks like strategic bet

Qatar's Greek bailout could pay strategic dividends too. The decision by one of the Gulf state's many investment vehicles to inject 500 million euros into newly formed lender EFG Eurobank, via a mandatory convertible bond, came as a surprise.

But the investment looks characteristically opportune, and Qatar's support for troubled banks in the euro zone may not end there.
     
Paramount is relatively unknown - simply described as representing the interests of Qatar's royal family. It looks like just another one of the many entities used by the country to channel its investments.

Qatar's stake in British bank Barclays, for example, was split between a special purpose vehicle called Challenger, owned by Sheikh Hamad bin Jassim bin Jabr Al Thani, and Qatar Holding, a subsidiary of the country's main sovereign fund which has a broad mandate to diversify the economy.   
 
The deal will help Paramount lower the cost of its existing 4 percent stake in Alpha Bank bought in 2008 for around 18 euros per share or 296 million euros - the lender's shares now trade at around 2.5 euros. Qatar expects to get an annual 10 percent coupon from the new lender until its three-year instrument converts at 1.70 euros per share - a 20 percent discount to the pro-forma market price at the time of the deal.     

Distressed Western banks once again look like attractive territory for wealthy sovereign investors that can afford to make investments with a long-term view.

The European bank sector trades on price-to-tangible net asset value of around 0.8 times for 2011 and, according to Citi, suggest a slowdown in future earnings beyond that of the bank's own forecasts or a normal economic recession.     

Of course, Qatar's small circle of decision makers may also have other objectives in mind. In the last year alone, the emirate signed non-binding agreements to invest over $12 billion into the Greek economy, across a range of sectors including energy, banks, real estate and tourism. Whether Qatar also invested in heavily discounted Greek sovereign debt remains unknown.     

Qatar has a sizeable interest in shoring up relations with Europe, as it seeks to become the region's preferred provider of gas. Propping up the banking sector is one way of showing it can be relied on when it counts.     
   
CONTEXT NEWS   
 
- Qatar's Paramount Services Holding has agreed to purchase 500 million euros of mandatory convertible notes issued following an agreed merger of Greek lenders Alpha Bank and EFG Eurobank.
     
- The convertible is expected to have a three year maturity, pay an annual coupon of 10 percent, and convert at a price of 1.70 euros per share - equivalent to a 20 percent discount to the pro-forma share price as of Aug. 26.   
 
- Paramount, which already owns 4 percent of Alpha and is described as representing the interests of Qatar's "most prominent" family, will effectively own around 17 percent of the lender after the deal.     

- Last September, Qatar signed a memorandum of understanding concerning potential investments totalling up to $5 billion in the Greek economy across sectors ranging from banking to energy and real estate.

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