Sovereign Wealth Funds Are Said To Be Eyeing BP

[caption id="" align="alignleft" width="180" caption="Creative Commons License photo credit: The Sly Gentleman"][/caption]

With BP’s promise to President Obama that it will pony up the means to clean up and compensate those who are adversely affected economically by the spill, and the tally growing day by day, and the fact that BP’s shares are trading at half their worth before the spill, the sharks are circling to purchase the once mighty oil giant.

The Associated Press is reporting that among the sharks circling to devour BP are Middle East Sovereign funds (SWF).

According to Investopedia, Sovereign Wealth funds are defined as money derived from a country's reserves, which are set aside for investment purposes that will benefit the country's economy and citizens.

The funding for a sovereign wealth fund comes from from central bank reserves that accumulate as a result of budget and trade surpluses, and even from revenue generated from the exports of natural resources

The United Arab Emirates (UAE) is said to have submitted its' proposal for investing in BP; of course, those representing BP are not confirming if there are such a bid from the UAE.

The SWP money will go to buy key BP assets, or to augment and buttress its' balance sheets, which have been profusely bleeding money to clean up and compensate residents of the Gulf States.

The London Times is also reporting that BP is hoping for an investment from a SWP, which will purchase at least 5 to 10% of its' assets, at a cost of $9.1 billion. BP is hoping that the investment by a SWF, who is considered a friendly suitor, might fend off BP’s rivals, such as Exxon Mobil and Royal Dutch Shell.

This is not the first time a SWF has come to the rescue of a company in dire straits: The Abu Dhabi Investment Authority, said to be the largest Sovereign Wealth Fund, invested over $7 billion in CitiGroup in 2007; and Qatar is said to have invested billions in British Barclays bank.

The amount of money reported in these SWF transactions is substantial. As of May 2007, the UAE's fund was worth more than $875 billion. The estimated value of all SWFs is pegged at $2.5 trillion.