Hong Kong in talks with UAE and Saudi sovereign wealth funds for Asia investments

Strong deal pipeline already in place in Asia, GCC and Middle East, Belt and Road commissioner says

Belt and Road commissioner Nicholas Ho is leading Hong Kong's push to boost trade and investment flows

Hong Kong is in talks with sovereign wealth funds in Dubai, Abu Dhabi and Riyadh to channel their investments into broader Asian markets including China and enable deals for Asian investors in the Gulf, a senior government official has said.

The city, one of the biggest financial and trading hubs in Asia, has already developed a strong deal pipeline in Asia, the GCC and the broader Middle East region, in sectors such as energy, sustainability, infrastructure and utilities, commissioner for Belt and Road Nicholas Ho told The National.

“We want Hong Kong to be the Middle East hub in Asia, so we want to channel Middle East investments through Hong Kong into Asia, the rest of mainland China. We want to channel mainland Chinese investments [and] Asian investments into the Middle East at the same time as a mutual landing pad.”

Ideal placement

Hong Kong operates on the principle of “one country, two systems”, which makes the city a gateway for investment flows to and from China.

The city is ideally placed to be a launch pad for state funds, quasi-sovereign investment vehicles and private investors in the Arab world seeking investment opportunities in China and Asean.

“You need someone with a good standard, good branding, someone that has the international connectivity, the capital connectivity, the legal system, the common law … you need everything to make this a success and Hong Kong has it all,” Mr Ho said.

Several GCC sovereign investors, including the UAE’s Mubadala Investment Company, which invests on behalf of the Abu Dhabi government, and the Riyadh-based Public Investment Fund have opened offices in China.

Push for deals

In August, the PIF signed agreements worth up to $50 billion with six major Chinese financial institutions: the Agricultural Bank of China, the Bank of China, the China Construction Bank, the China Export and Credit Insurance Corporation, the Export-Import Bank of China and the Industrial and Commercial Bank of China.

The pacts cover areas such as two-way capital flows through debt and equity, and enable Saudi Arabia to tap into China's banking sector, whose assets grew by almost 10 per cent last year, reaching 417.3 trillion yuan ($57.6 trillion), according to BBVA Research.

About $2.3 billion of sovereign capital from the Middle East flowed into the greater Chinese market last year, external executive director of Hong Kong’s central bank, Kenneth Hui, said at a conference in July.

In the UAE, the Abu Dhabi Investment Office last year partnered with Hong Kong-based Arte Capital to help Chinese companies expand in the Middle East.

Dubai is also working to boost the flow of Chinese investment in sectors such as logistics, clean energy technologies, electric vehicle manufacturing and artificial intelligence.

Companies based in the Gulf are also looking to secure deals in China. This year, Saudi Basic Industries Corporation, the Middle East's largest petrochemicals company, finalised a 44.8 billion yuan ($6.4 billion) investment in a Chinese joint venture.

In May, Alat, a subsidiary of the PIF, announced that it would invest $2 billion in Chinese tech company Lenovo’s convertible bond in exchange for the company opening a manufacturing plant in Saudi Arabia.

Saudi Aramco, the world’s biggest oil exporting company, is considering taking a 10 per cent stake in China’s Hengli Petrochemical.

Bahrain’s Investcorp, an alternative asset manager that counts Mubadala as its biggest shareholder, also partnered with China’s sovereign wealth fund this year for a $1 billion investment in high-growth companies in the Gulf and China.

Hong Kong’s Middle East push is part of China’s Belt and Road Initiative, the largest infrastructure, trade and investment programme embarked upon by a single country.

Hong Kong has also held talks with several Chinese investment funds that have already formed joint ventures with partners in the Middle East to help them further boost their investments in Arab economies, Mr Ho said.

Cross listings

Hong Kong is also engaged in conversations with several major listed companies in the UAE and Saudi Arabia to cross-list their shares on the Hong Kong Stock Exchange, one of the largest markets in Asia.

The HKEX, considered a gateway for international investors to the mainland Chinese market, has actively sought to build relations this year with exchanges in the Gulf region, after a string of high-profile initial public offerings over the past few years.

In July, the HKEX announced that it had added the Abu Dhabi Securities Exchange and the Dubai Financial Market as recognised stock exchanges. The move allows public joint stock companies listed on the two UAE exchanges to apply for secondary listings in Hong Kong.

In February, the HKEX also signed a pact with Saudi Arabia's Tadawul stock exchange, the largest Arab exchange by market capitalisation, to explore cross-listings of companies in Hong Kong.

“I think most attractive to Hong Kong is definitely the giants, the big deals, the big companies, whether they are sovereign or private, whether in energy or minerals or utility,” Mr Ho said. “These are the things that Hong Kong wants to attract in our IPO market, and we definitely want to attract family offices.”

At the end of last year, the first Saudi exchange trading fund was launched on the HKEX, with the Hong Kong equivalent set to be launched in Saudi Arabia soon.

“That's just the beginning, and it proves the financial connectivity, is there,” between the two markets, Mr Ho said.

Hong Kong is also keen to enable fund-raising by Gulf investors and companies seeking capital to expand their footprint to the broader Asian markets.

“We see that a lot of Middle East funds, whether they're sovereign or private or semi-private, increasingly, they're using Hong Kong to raise money, they use Hong Kong to get loans to invest in the region, so we have become the natural hub … the financing vehicle for them,” Mr Ho said.

Hong Kong could also enable green financing for Middle Eastern investors looking to diversify their funding sources and raise capital to meet sustainability targets, he added.