Gulf emirates on buying spree

As oil prices soar, Middle Eastern governments are exercising their growing clout by making deals around the globe -- with a new political savvy.

Thursday saw a burst of activity involving Mideast governments, including a battle between two Persian Gulf emirates over stakes in the London Stock Exchange and a bid by one of them for a stake in Nasdaq Stock Market. A third emirate announced an investment in Carlyle Group, a Washington-based private-equity firm known for ties to political heavy hitters such as former President Bush.

The governments of the Persian Gulf, along with regional powerhouse Saudi Arabia, have seen their coffers swell to unprecedented size with rising energy prices and a regional economic boom. Thursday crude oil topped $83 a barrel.

The deals mark a new level of engagement by an emerging group of Arab states whose leaders are generally friendly to the West and are eager to make a mark in global finance. The influence of countries such as Dubai and Qatar has grown even greater in recent months because, thanks to their cash, they are immune to the debt-market troubles that have frozen some other investors.

Four of the eight largest government-controlled investment authorities are from the Gulf, and the Abu Dhabi Investment Authority tops the list with assets estimated at $875 billion, according to Morgan Stanley. That's more than triple the size of Calpers, the California pension fund.

Middle Eastern firms and funds shopping around the globe have spent $64 billion so far this year, compared with $30.8 billion in all of last year and $4.5 billion in 2004, according to Dealogic. Acquisitions in the U.S. and Britain account for slightly more than half of the total this year.

"The deep pools of capital in the Middle East are increasingly affecting all aspects of global financial markets, both private and public," says Monte Brem, chief executive officer of StepStone Group LLC, La Jolla, Calif., which advises Middle Eastern institutions on their international investments.

Middle Eastern countries are becoming more sophisticated at heading off potential backlash from high-profile deals, especially in the U.S. They have learned from the firestorm last year that forced a Dubai-controlled company to sell the U.S. port operations of a British company it had acquired. China, which also combines deep pockets of foreign reserves with a shaky standing in Washington, left another lesson when one of its government firms tried unsuccessfully to purchase the U.S. oil company Unocal.

Dubai, which is seeking a minority stake in Nasdaq, asked the Bush administration to vet the deal upfront for potential national-security issues. It hired a team of Washington lobbyists and strategists to reach out to officials in the administration and Capitol Hill a day before the proposed deal became public, according to people familiar with the situation.

While President Bush promised a careful review of the deal, a key legislator, Democrat Barney Frank, said it "doesn't raise any alarm bells to me." Rep. Frank, who is chairman of the House Financial Services Committee, noted Nasdaq is a highly regulated entity and "there's no physical transfer of property" in the proposed deal.

The Nasdaq deal is part of a larger battle between Dubai and Qatar for control over parts of world stock exchanges. Dubai, part of the United Arab Emirates, is the flashier of the two. Nearby Qatar is a tiny country that controls the world's third-largest gas reserves.

Apart from Nasdaq, the other two stock exchanges involved in the maneuvering are London Stock Exchange Group PLC and a company called OMX AB that operates stock exchanges in Sweden, Denmark, Finland, Iceland and Baltic countries.

Dubai's stock exchange agreed to a deal Thursday under which it will take a 19.9 percent stake in Nasdaq and buy a 28 percent stake in the London exchange from Nasdaq. The deal would also result in Nasdaq owning OMX.

Just as it seemed Dubai had locked up an alliance with leading exchanges in the world's top two financial capitals, Qatar moved in with an apparent bid to upset it. Qatar spent $1.36 billion in a matter of hours before the market opened to buy 20 percent of the London exchange. It also spent $470 million during trading hours to buy 10 percent of OMX.

The battle between Qatar and Dubai for a piece of Western stock exchanges is part of their jockeying to become the premier financial center in the Middle East.

Meanwhile, lawmakers on Capitol Hill said they would closely monitor Dubai's proposed transaction for a Nasdaq stake. New York Democratic Sen. Charles Schumer warned in a letter to the Treasury Department the deal "would result in a foreign government having a large influence on the decisions made by a critical part of the U.S. economic infrastructure."