Daily Management Review

Qatar Investment Authority Tightens Its Belt Thanks to Volkswagen and Glencore


Qatar Investment Authority has suffered serious losses in the quarter, which ends in two days. The investment fund suffers losses on the background of the Volkswagen’s scandal, the protracted depreciation of Glencore, whose shares on Monday fell to the 29.4% in London, plus the slowdown in the Chinese economy.

For Qatar Investment Authority (QIA) - the fund created by the government for long-term investments - the current quarter clearly is going to be one of the worst in its history. Only one of the fund’s ten largest investment packet ends the third quarter in the black. Most of all, the investment fund is suffering from falling prices of Volkswagen, Glencore and Agricultural Bank of China securities, because of which the QIA has suffered losses of nearly $ 12 billion.   

The scandal around the Volkswagen AG and its software has become the most expensive for QIA. The fact that the Qatari investment fund is one of the largest shareholders of the German automaker, the German company - its biggest asset. Once it became clear that the manufacturer has been concealing the real volume of emissions of harmful substances from its cars with diesel engines for many years, Volkswagen’s quotes began to rapidly lose altitude. Since then, they have depreciated by 37%, and the Qatar Investment Authority lost about $ 8.4 billion on ordinary and preference shares of the automaker, according to the Financial Times. Given that the prospects for Volkswagen now are not rosy at all, and it faces severe penalties, not only in United States, but around the world, all the big losses are still awaiting the QIA.

The second largest hole in Qatar Foundation’s investment portfolio became Glencore PLC. The business of the one of the world's largest traders of raw materials has not been going right for a long time. Eventually, Investec bank’s report released on Monday, apparently, finally forced investors to turn away from the company. As a result, on Monday on the London Stock Exchange, Glencore’s trading securities have fallen by 31.4%, down to the record low of 68.62 pence. After trading on the LSE, Glencore shares collapsed on the stock exchange in Hong Kong, where they lost 27.5% in the price.

Investec’s report says that considering current energy prices, companies with high debt are going to have problems with the fulfillment of obligations to investors. "Debt is fast becoming the most important issue for mining companies’ management. Fulfillment of obligations to creditors can absorb greatly reduced earnings of companies with high debt, such as Glencore"- writes Hunter Hillcoat, an analyst at Investec in the report.  

Since the beginning of the year, the market capitalization of Glencore has already reduced by 75%. The reason is the Chinese economy, which is showing weak growth and declining level of industrial activity in the current year. Such a situation in the second largest market in the world, as well as the preservation of low oil prices has a negative impact on raw materials suppliers. The company's debt, which the CEO Ivan Glasenberg has vowed to fight in early September, has already outgrown the capitalization of Glencore. While the company is now estimated at $ 18 billion on the market, its debt to creditors has reached $ 29.6 billion in the first half of the year.  

Another major asset of Qatari Investment Authority, which is losing value at the end of this quarter, is the Agricultural Bank of China. Falling value of its shares has resulted in $ 650 million losses for QIA. The fund is losing another $ 500 million on Royal Dutch Shell securities, about $ 350 mln. thanks to Siemens, and another $ 240 million of losses occurred in Barclays. In total, the ten largest investment packages of Qatar Investment Authority end the quarter with a total index loss of approximately $ 13.6 billion.

source: ft.com