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Chinese investors may enter the ME oil market

by Jyotsna Ravishankar on Jan 9, 2013

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Kai Schneider
Kai Schneider

Latham and Watkins partner, Kai Schneider says the New Silk Road from China to the Middle East is paved with immense growth opportunities for new projects in the region. He says the Chinese will soon become a force to reckon with the in the UAE and Saudi Arabia.

Nearly three quarters (70%) of Chinese investors regard trade and investment in the Middle East and North Africa (MENA) region as “very important” for China’s economic future, according to Kai Schneider, partner, Latham & Watkins.

Schneider is also the head of the Investment Funds Practice in the Middle East and Africa.

He is a corporate attorney focussed on investment funds, joint ventures and private equity.

However, Schneider these days has been active in roadshows across China discussing - The New Silk Road 2012: Investing In and Venturing With Middle East Companies.

Schneider does not think these shows are in vain and sees a huge possible inflow of Chinese capital into both upstream and downstream projects in the UAE and Saudi Arabia.
“The investment made by China in the Saudi Arabian refinery took the world by surprise. But, according to me that is just the beginning,” he said.

Schneider further referred to a report commissioned by the global law firm and said that over the next two years, Chinese trade and investment in the MENA region is expected to increase substantially.

He said 80% of respondents predict big growth in trade; while 65% expect significant growth in investment activity.

“The strategic link between China and the Middle East is of paramount importance to the world economy. The dynamism and growth potential of these two regions is phenomenal.

“As trade and investment activity flows more strongly between these two economic powerhouses, the new Silk Road will become an even more influential business and financial highway for the flow of ideas, investment and innovation,” says Schneider.
The survey lists energy security as the primary factor driving Chinese investment in the MENA region.

The main reasons for the Chinese – Middle East co-operation in the oil and gas business are China seeking energy security and the US Shale gas find.
Now with the US becoming self-sufficient, the Middle East needs a new best friend and that maybe China, he says.

As most Chinese construction firms prefer to deal with their own banks, the nature of the partnership will be such where the Middle Eastern partner will deal with a construction firm and a bank ready to fund the project, he says.

Saudi Arabia and the United Arab Emirates top the list of most attractive investment jurisdictions for Chinese investments.

This is not a surprise, says Schneider as the report cites sovereign risk and political instability as the primary barriers to more widespread investment in the MENA region.

The investment, according to Schneider, will be both in upstream, downstream and even alternate energy.

Latham & Watkins recently advised Riyad Bank in connection with SAR 500 million murabaha-tawarruq facilities for Sahara Petrochemicals Company.

The three-year standby revolving facilities will support the company’s working capital requirements and fund the company’s existing and future projects.
Will they be doing more downstream deals like this in the future? “If the opportunity, arises why not,” he says.


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