FT: When doing business, Qatar borrows heavily because it can
Most of Qatar’s high-profile acquisitions in recent years have been funded by debt, including Qatar Holding’s purchase of Harrods and the stake it took in Porsche-VW, the Financial Times reports.
Global banks are now accustomed to competing to finance the deals it recommends to the country’s movers and shakers, the newspaper continues:
While it may seem counterintuitive that one of the world’s richest nations borrows money to help fund its global deals, it is precisely because of its enormous wealth that the state can borrow for next to nothing…
Standard & Poor’s, which gives Qatar a “very high” AA rating, puts the government’s net debt at about 50 percent of gross domestic product.
In context, the US and UK government debts are approaching 100 percent; India is slightly over 50 percent and China is just over 25 percent, according to the Economist.
In the finance world, conducting a deal using debt is considered advantageous because it allows the buyer to retain full ownership of the purchase. The alternatives are to use cash or make the purchase through equity financing, in which a portion of ownership is sold to buyers with whom future profits are shared.
Debt financing is a strategy used by countries across the GCC, the FT adds.
Credit: Photo by Ambernectar13
Note: This article has been corrected to accurately reflect government debt figures of various countries.