Qatar Holding's late rebuff of Glencore's $26 billion bid for miner Xstrata indicates a more assertive stance by the sovereign fund, which has hitherto been content with a less muscular role in its big-name portfolio.

In an unusually aggressive move for sovereign wealth funds, which typically keep their heads down to avoid any political backlash, Qatar piled the pressure on Glencore for a better deal at the 11th hour.



"This is more like a private equity, hedge-fund style transaction, not the kind of stuff you associate [with] sovereign wealth funds in the region," said the investment banking head of a global bank in Dubai. "It's the confidence that exudes from making large deals globally. As an allocator of capital, you are always in demand, more so during tough times."



Late on Tuesday, Qatar, Xstrata's second largest shareholder and a potential kingmaker for the deal, said Glencore should pay 3.25 of its shares per Xstrata share, rather than the 2.8 on offer.



The move will make it difficult for Glencore and Xstrata to push the merger through on current terms, several sources close to the deal said, leaving Glencore only until Thursday evening to sweeten the deal or be forced to delay shareholder meetings scheduled for mid-July.



The gambit shows Qatar's growing confidence but does not signal it will suddenly become an activist investor, said bankers who have tracked and advised the fund on some of its most high-profile deals. They spoke on condition of anonymity for fear of losing future business with the fund.



"For the fund, with a mandate to invest for its future generations, getting maximum value for its investments is the prime objective," said the top banker at an advisory firm in Dubai.



"They saw a good opportunity there to force Glencore to increase merger terms by picking up a significant stake and then negotiating for more."



Qatar Holding, the investment arm of Qatar Investment Authority (QIA), has been building up its stake of around 11 per cent in Xstrata since February.



In a rare April media briefing, QIA executive board member Hussain al-Abdulla repeatedly dodged a question about the stake increase, saying he was "legally advised" not to speak.



It halted its buying in June, but not before amassing a position worth nearly $4 billion at current market prices. That makes Qatar's role vital as Glencore's bid needs approval from 75 per cent of Xstrata shareholder, excluding its own 34 percent holding.



"Looking back, all this stake building seems now to be part of a clear strategy. A strategy to increase the stake and go to Glencore and say, 'give us better terms or you won't see this merger through'," a Gulf-based investment banker who has advised the fund said.



Glencore is expected to sweeten its bid in order to seal the deal and said on Wednesday it would consider a proposal from Xstrata's board regarding amendments to the management incentives that were proposed as part of the deal.



With stakes in such high-profile names ranging from German sports car maker Porsche, luxury goods house LVMH to British bank Barclays and Swiss lender Credit Suisse, the fund has built a reputation as one of the most acquisitive investors in the business.



It has publicly expressed interest for commodity investments and sits on an annual investment budget of between $30 billion to $40 billion every year.



Philipp Mohr, global head of M&A advisory at Commerzbank, who declined to discuss specific deals, said sovereign investors have become confident about setting terms and conditions for an investment.



"If they trust management, they will stick with them. But most of these investments are by their nature not eternal, even if they are long term."



Carsten Dentler, co-head of investment banking at UBS Germany, who also declined to discuss specific deals, said: "Originally such investors were perceived to be passive without much of a strategic aim. They seldom demanded a seat on the supervisory board, for example."



Even if the merger does not go through, bankers say the Qatari fund has little to lose with its investment in Xstrata, a profitable miner that fits in with its strategy of taking ownership stakes in commodity firms.



"They see an underlying valuation rationale in Xstrata. Qatar is pushing to see if they get more value for it from Glencore, but if not, they still end up having a sizeable stake in an incredibly profitable miner," said the advisory firm banker.



Qatar has made no secret of its intentions to invest in commodity-linked assets, even though it passed on an opportunity to invest in Glencore's IPO last year.



It was touted to launch a $10 billion fund to invest in listed gold companies last year and agreed to co-invest with Barclays' natural resources private equity investment unit in April.



"This is probably the first time they (Qatar) have taken such a stance on a high-profile deal," a senior Dubai-based banker said, speaking on condition of anonymity due to business links with the fund. "To me, it clearly shows the evolution of the fund from being a quiet investor to an investment force to be reckoned with."

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