U.K. Prime Minister Gordon Brown urged sovereign wealth funds from the Persian Gulf to invest in British companies needing more financing because of the credit crunch. Brown arrived in Riyadh late yesterday with Business Secretary Peter Mandelson, Energy Secretary Ed Miliband and a delegation of business leaders to encourage funding from cash- rich oil producers.So far, matters are pretty straightforward. However, things become iffier when Mandelson says this:
``The Gulf states will have a vital role to play in agreeing the plans to get the world economy moving again,'' Brown told reporters before arriving in Riyadh. They ``are an increasingly important source of inward investment to the U.K. As long as they play by our rules and operate in a commercial manner, we welcome investment from sovereign wealth funds.''
Barclays Plc, Britain's second-biggest bank, earlier this week said it would raise 7.3 billion pounds ($11.8 billion) by selling securities to investors including funds in Abu Dhabi and Qatar. Sheikh Mansour Bin Zayed Al Nahyan, a member of Abu Dhabi's royal family, will become its biggest shareholder.
Sheikh Mansour will collect interest payments of as much as 14 percent and control 16.3 percent of the London-based bank after putting up 5 billion pounds ($8 billion), the company said in a statement yesterday. Barclays fell 13 percent after analysts at Sanford C. Bernstein & Co. said the bank was paying a ``fairly expensive'' price for the capital injection...
Mandelson, a former European Union trade commissioner, said he wants more money from the region to go to the U.K. and that he didn't anticipate difficulties with political interference. ``We haven't had a problem with sovereign wealth funds in the past, so I don't see why it should be a problem in the future,'' he said in an interview. ``They want to generate a good return. They are the first to steer clear of politics.''Lord Mandelson misspoke here. Considering that current British Petroleum CEO Tony Hayward is with Mandelson on this trip, this mistake is remarkable. Then again, Mandelson might be aware of the past, except that he's trying to be diplomatic and selectively recall history. It may surprise some readers that Baroness Thatcher, that towering champion of Anglo-Saxon economic governance, once forced the hand of the Kuwaiti SWF when it attempted to control a large stake in BP after the stock market crash of two decades ago. Instead of welcoming this influx of foreign capital, her administration asked the Kuwaitis to divest from BP. Contrary to the inviting words of Brown and Mandelson, there is much room for GCCs to be skeptical of investing in Britain lest history repeat itself. Protectionism it was in the form of unvarnished xenophobia. From a TIME article dated Oct. 17, 1988:
When the Kuwait Investment Office began putting money into British Petroleum stock last October , Britain gratefully welcomed the new shareholder. The Thatcher government's ill-timed $12 billion public offering of BP shares had run smack into the worldwide stock crash, and the Kuwaitis were among the few investors willing to buy. Britain's relief turned to discomfort, though, as Kuwait's stake in the oil company kept growing, from 10% last November to a current level of 21.6%, making the Arab country by far BP's largest stockholder.
Getting nowhere with diplomatic requests that Kuwait unwind its investment, the Thatcher government last week ordered the OPEC member to slash its $5 billion stake in BP by more than half, to 9.9% of BP's shares, by next October. Under British laws regulating investments that affect the public interest, the government can legally force Kuwait to comply. Allowing a member of OPEC to have a major voice in BP's affairs, said the British Monopolies and Mergers Commission, is not in Britain's best interest.