China Tackles the English Premier League as SWFs Capitalize on Rising Consumer Wealth in Emerging Markets

August 25, 2016 by SWC Editors

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ChinatownGate1
The gateway to Chinatown in Liverpool, U.K., is the largest such arch outside of mainland China.

This week, news broke that one of the U.K’s foremost soccer teams, Liverpool F.C., may have caught the eye of a state-owned Chinese securities firm intent on owning a piece of a team known as "the Reds." The growing wealth of consumers in emerging markets is spurring new deals for financial services providers and telecommunications companies in far-flung regions. In New York City, however, the Qatar Investment Authority sets its sights on a small stake in a tall icon: The Empire State Building.   

Liverpool Lures Shanghai 

British soccer is hot on Chinese TV. An increase in the number of televisions sold in China — and subscription viewing packages — means the English Premier League has recently gained access to a pool of more than one billion potential fans. According to China’s largest newspaper, The People’s Daily, more than half of China’s population claimed to support a British soccer team in October 2015. Soccer has lately experienced a stratospheric rise in popularity amongst the Chinese population, with more people in China playing and watching soccer — both domestic and international games — than ever before.

This popularity seems to have spilled over to China’s investment interests. This week, Shanghai-based brokerage firm Everbright Securities Co. — an entity wholly owned by the Chinese state through the country’s Ministry of Finance and Central Huijin Investment, the domestic investment arm of China's sovereign wealth fund, China Investment Corp. — was leading a consortium reportedly bidding for one of the U.K.’s foremost soccer clubs, Liverpool Football Club (F.C.), colloquially known as "the Reds" for the distinctive color of their jerseys. 

The Everbright-led consortium is said to have approached Liverpool F.C.’s U.S. owner, Boston-based sports investment firm Fenway Sports Group, to buy a majority stake in the team. However, speculation of a sale has been rebuffed both by Liverpool’s U.S.-based Chairman, Tom Werner, and its U.K.-based CEO, Ian Ayre, even as rumours circulated that Fenway had hired New York-headquartered investment bank Allen & Co. to consult on any potential transaction.

The news of a potential sale of Liverpool F.C. comes on the heels of other sales of British soccer clubs to Chinese investors in 2016, with Chinese business tycoons snapping up a number of clubs. In May, Chinese business tycoon Tony Jiantong Xia, chairman, CEO and owner of Beijing-based Recon Group, bought Birmingham-based Aston Villa for £60 million ($87.6 million); in July, Chinese billionaire Guo Guangchang, chairman of Shangahi-based Fosun International, acquired Wolverhampton Wanderers for £45 million; earlier this month, a holding company controlled by Chinese businessman Guochuan Lai acquired West Bromwich Albion for an undisclosed sum.

The size of the Liverpool deal would likely eclipse the prices paid for these clubs. If the deal goes ahead, it may be similar in size to the $400 million that a Chinese-led consortium paid for a stake in Manchester, U.K-based City Football Group, the holding company that owns another major British soccer team, Manchester City, in December 2015.

Opportunities from Wealthier Emerging-Markets Consumers Attract Funds

A number of sovereign and government funds continue to follow the trend lines of consumer consumption in emerging markets, particularly India, providing investment capital to help boost services. This week, Norges Bank Investment Management, the arm of the central bank that oversees Norway’s $855 sovereign wealth fund, the Government Pension Fund Global (GPFG), took a stake in an Indian financial institution, RBL Bank. 

GPFG acted as an anchor investor in the initial public offering (IPO) of RBL Bank, one of India’s largest providers of commercial banking services. The IPO was more than three times oversubscribed and raised a total of INR 12.13 billion ($182 million) for RBL. Filings from India’s National Stock Exchange reveal that GPFG bought 844,415 shares at INR 225 per share, equivalent to 5.22 percent of the shares on offer. India’s vast population — second in size only to China — is underserved by banks, offering a huge potential customer base for banking services.

Thanks to the rising wealth of its middle class, India also offers investment opportunities for funds willing to take on infrastructure projects. News broke this month that Canadian pension fund manager Canada Pension Plan Investment Board and Temasek were going toe-to-toe in an attempt to buy a stake in Indian infrastructure development firm Infrastructure Leasing & Financial Services, a company that builds toll-bridges, -roads and -tunnels for the country’s swelling legion of motor vehicles. Indian road construction certainly provides popular investment projects: Early in August, the Abu Dhabi Investment Authority invested $3.9 million in the IPO of Bhopal-based road-construction firm Dilip Buildcon, buying 1.2 million shares or 13.5 percent of the float. Meanwhile, GIC has reportedly been considering an investment in new shopping malls in India to cater for India’s increasing number of urbanite, middle-class shoppers.

Telecommunications services are also growing rapidly in emerging markets, especially cell phone sales. The uptake of cell phones in emerging markets is exploding as units become more affordable and disposable income rises — a trend boosted by the expanding provision of electricity to keep phones charged. GPFG invested in telecoms in Sri Lanka over the summer of 2016. The Norwegian fund announced in August 2016 that it had increased its position in the island’s largest telecoms firm, Colombo-based Dialog Axiata, from 28.7 million shares at the end of September 2015 to 96.6 million shares as of June 30, 2016. Dialog Axiata’s share price at the close of trading on the Colombo Stock Exchange on June 30 places the value of the 67.9 million shares NBIM has acquired at LKR 706.2 million ($4.9 million).

QIA Snaps Up Stake in Empire State Building’s Owner

Midtown Manhattan’s Empire State Building is among the most iconic skyscrapers ever built, even if its developers can no longer lay claim to it being tallest building in New York City, let alone the world. No wonder the Qatar Investment Authority’s (QIA’s) purchase this week of a 9.9 percent stake in the building’s owner, New York-based real estate investment trust (REIT) Empire State Realty Trust, has attracted attention.
 
QIA is no stranger to high-end Manhattan property, having purchased stakes in luxury hotels in the borough in the past, but this is the first time the Qatari fund will have purchased such a famous U.S. property, even indirectly. QIA paid $621.8 million for 29.6 million newly-issued class A common shares in the REIT at $21 per share. This investment will give QIA a 9.9 percent voting interest and a 19.4 percent ownership interest in Empire State’s class A shares.

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