By Sundeep Tucker In Hong Kong and Simeon Kerr in Dubai 2010-01-25
A leading Chinese financial group is in advanced preparations to launch a Dubai-focused investment fund, highlighting global interest in a rebound in Gulf economies.
Dubai said last November it would call a standstill on billions of dollars in debts, prompting a second bail-out loan of $10bn from oil-rich Abu Dhabi to prevent a damaging default.
The crisis of confidence surrounding the city’s $100bn-plus debt pile capped a year of deep recession as the overheated real estate sector finally crashed.
First Eastern Investment Group, an independent Hong Kong-based firm, is aiming for a $250m fund, of which it will supply anchor capital of $50m.
The fund – testament to ever-closer business ties between China and the Gulf – would appear to be the first to target the troubled Dubai economy in a bet that the city will be able to recover as higher oil prices lift the prospects of the oil-rich Gulf.
First Eastern is in talks with Abu Dhabi-based investors to supply a further $50m and it plans to tap Chinese and global interest in the fund in the coming weeks.
Victor Chu, First Eastern chairman, told the Financial Times that his group believed that the Dubai economy would recover and progress on a more sustainable footing.
He said the fund would focus on investing in regional business services companies, in areas such as shipping and oil.
Some sectors of Dubai’s economy, such as aviation and trade, have weathered the crisis better than the harder-hit businesses in finance and real estate. But the loss of liquidity has left many companies – including those in Gulf states less affected by the crisis – short of credit.
The fund would also seek to invest in Gulf hotels, which would be refashioned to cater for the growing number of Chinese visitors to the region.
“We want to support sustainable businesses connected to Dubai as a trading, logistical and financial centre,” Mr Chu said. “We would use our contacts to also help them expand in China and across Asia.”
A successful fund launch by First Eastern would mark the latest in a number of initiatives to capitalise on rising Chinese interest in investing overseas.
First Eastern’s securities arm holds investment banking licences in Hong Kong, London and Dubai and it is looking to acquire a presence in the US. It is also aiming to raise a Rmb6bn ($878m) local-currency fund in China, after becoming the first foreign private equity group allowed to set up a Shanghai-incorporated subsidiary.
Companies from the Chinese province of Wenzhou are planning a trip to Dubai next month to invest in assets as the market starts to stabilise, but local brokers report that wholesale transactions are still rare as sellers have been unwilling to lower their offers to reasonable levels despite the severe correction.