It's Raining Petro Dollars - One Deal at the Time

Arab petroleum dollars, coming from the record oil prices, are increasingly flooding the U.S in terms of recent international movements of overwhelming capital from the Middle East back into the U.S assets.

Arab states, flooded by the deepest long-lasting-dollar-tide ever, scoop large sums at the time and increasingly buy stakes in U.S. companies. One should not be surprised: all their values are denominated in dollars. Their rise in receivable dollar quantity is offset largely by steep dollar decline, which translates that they need to do something quickly with that huge pile of devalued paper to preserve its value.

And what could be better than to put it back where it’s worth the most- on its home soil. And to put it to work at exact time when the U.S. assets are at the lowest, most attractive, undervalued and most affordable level in five years. Right before the dollar bounces back and starts generating returns again.

Private and public Middle Eastern organizations increasingly invest on the U.S soil. One attempt to takeover the seaport company by Dubai Ports some time ago has been questioned and pretty much stopped, but most other investments are more than welcomed, especially lately.

As Dubai rises as the most modern new financial, business, futuristic residential and tourist center of the Middle East, so are the appetites for Middle East to grow further, engage in wider global transactions and increase the free trade zone amongst the countries in the Middle East. And as Dubai rises and spends, Abu Dhabi, Saudi, and other states accumulated enormous wealth and are now looking for ways to put that cash under the mattress to work.

Whether it is a billion dollar apartment complex, stake in Chrysler, Starbucks, TLC, Barneys, or more troubling and scrutinized attempt to acquire a port company, an attempt by Dubai Port World some time ago, or the stake in the company that produces engines for the U.S military tanks and aircrafts, most of Middle Eastern money injections are warmly welcomed.

Just recently, Dubai has proposed acquiring 20% of Nasdaq, which would give this nation an ownership in the major U.S stock exchange. Investment in Sun City, Manhattan landmark, MGM Casino and City Center development projects….

But that’s just beginning. Dubai International’s CEO, Sameer al-Ansari, said to the New York Times, "It is very important for us to find and execute deals in the U.S., as we're trying to create a diversified portfolio." In addition to European, Japanese and Indian banks and companies, Dubai International also have five Fortune 500 companies on the list for possible investments and about 15 more on the watch list.

And how about last week’s massive cash infusion into Citi (C)?

No matter how divided opinions are on the topic, there are few factors that stand out: the Middle East swims in dollars. The U.S., with its huge trade deficit and current troubling economic conditions, needs foreign investment and capital infusion. And as the price of oil continues to rise next year (after it corrects here and stabilizes around or below $80 first), billions of dollars are going to continue flooding Middle East, and the best market to invest all that ever-growing pile of cash will continue to be the U.S. Huge investments back to the U.S. means just that: back to the U.S. All those dollars wasted in the black gold should continue coming back to us in forms of investments, growth and deficit reduction.

Investments mean further growth, it means an opportunistic “rescue”-investment (such as the case with Citi), and most importantly-it means employment and job growth. U.S employment rise (or steady unemployment) is dependent of further economic growth and prosperity. Investors from UAE and Saudi Arabia have proven for a long time now, that they are very financially secure partners who want "to help us build our brands", as MGM’s CEO Terry Lanni once said. And as our own private-equity firms sit on the sidelines waiting, opportunistic investors from Middle East are willing to step in and scoop great deals. Given the prices some of the most prominent, eternal, and stable U.S companies, with their values almost slashed in half (Citi, Merrill (MER), Lehman (LEH), Bank of America (BAC), JPMorgan Chase (JPM), just to name some) it’s no wonder that opportunistic investors see... well, opportunities.

As the Wall Street Journal pointed out recently, the last time a big Middle Eastern investor came to Citi’s rescue (also related to real estate crisis), it was nothing but a financial home run. Even after this recent slump, Citi is still worth 10 times now what that investor paid for in the last decade. Will that happen again we will see, but it certainly is a bargain, one must agree. It is the biggest bargain in its peer group of bargains. It’s only the matter of time when private firms and hedge funds will start jumping the wagon, and realize the longer-term opportunity ahead with any beaten down financial banking house, whether it’s JP Morgan, Merrill Lynch, Lehman Brothers, Bear Stearns (BSC) or Bank of America.

And, Middle Eastern petrodollars are not going away any time soon. We will see those greenbacks back here in terms of investments. Once we see the influx of dollars back to the U.S, we will see dollars gradually regaining its value again. So, relax. There is no Middle Eastern invasion, just as there was no Japanese invasion back in eighties. This is called investment, growth, opportunities… do you see them? They surely do. One deal at the time.

Disclosure: Author has a long position in some of the above-mentioned securities

Comments

[Arohan]

It is just investment as you pointed out. US companies have been taking stakes overseas for a long time now and there is no reason why companies outside US cannot do it. We will see more of these kind of deals as other economies grow

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