Qatar's decision to inject 500 million euros ($704.3 million) into the newly-formed combination of Eurobank EFG and Alpha Bank, via a mandatory convertible bond, could pay strategic dividends, said experts.

Qatar's little-known Paramount Services Holding will make the purchase of mandatory convertible notes issued following an agreed merger of Greek banking giants.

The decision by one of the Gulf state's many investment vehicles to pump the money into the JV came as a surprise. But the investment looks characteristically opportune, and Qatar's support for troubled banks in the euro zone may not end there, they noted.

Paramount is relatively unknown -- simply described as representing the interests of Qatar's royal family. It looks like just another one of the many entities used by the country to channel its investments.

Qatar's stake in British bank Barclays, for example, was split between a special purpose vehicle called Challenger, owned by Sheikh Hamad bin Jassim Bin Jabr Al-Thani, and Qatar Holding, a subsidiary of the country's main sovereign fund which has a broad mandate to diversify the economy.

The deal will help Paramount lower the cost of its existing 4 per cent stake in Alpha Bank bought in 2008 for around 18 euros per share or 296 million euros - the lender's shares now trade at around 2.5 euros.

Qatar expects to get an annual 10 per cent coupon from the new lender until its three-year instrument converts at 1.70 euros per share - a 20 per cent discount to the pro-forma market price at the time of the deal.

Distressed Western banks once again look like attractive territory for wealthy sovereign investors that can afford to make investments with a long-term view.

The European bank sector trades on price-to-tangible net asset value of around 0.8 times for 2011 and, according to Citi, suggest a slowdown in future earnings beyond that of the bank's own forecasts or a normal economic recession.

Of course, Qatar's small circle of decision makers may also have other objectives in mind, said experts.

In the last year alone, the country signed non-binding agreements to invest over $12 billion into the Greek economy, across a range of sectors including energy, banks, real estate and tourism. Whether Qatar also invested in heavily discounted Greek sovereign debt remains unknown.

Qatar has a sizeable interest in shoring up relations with Europe, as it seeks to become the region's preferred provider of gas. Propping up the banking sector is one way of showing it can be relied on when it counts, they added.-Reuters