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By Mike Caggeso
After years of amassing a diverse portfolio, Dubai's state-controlled holding company, Dubai World, is planning a Nov. 4 initial public offering of one of its subsidiaries, DP World, the world's fourth-largest port operator.
The IPO would sell 20% of DP World's equity and list on the Dubai International Financial Exchange, a move aimed at attracting investors from India, Africa and Europe. DP World manages 42 port terminals in 22 countries.
As P. Krishnamurty, chief executive officer of Dubai International Securities, told the Gulf News last week, DP World is not viewed as a local company. Investors who buy into this IPO are looking for a multinational company that is a blue-chip-quality investment with long-term potential, Krishnamurty said.
The stock offering is expected to raise an estimated $3.5 billion, giving DP World a total value of around $20 billion,.
The sale marks a 180-degree turn for the Dubai government – which through Dubai World, Dubai Holding and other private-equity firms has up to now been a big buyer, gobbling up such assets as real estate, national stock exchanges and even high-profile entertainment holdings.
The latest investment of the Dubai government's investment arm will have Dubai International Capital taking a $1.26 billion (or 9.9%) stake in hedge-fund firm Och-Ziff Capital Management Group, which is slated for an IPO of its own, MarketWatch reported.
Dubai International Capital is based in the United Arab Emirates and is an investment company owned by the emirates' ruler – Rashid Al Maktoum – is yet another of the fast-growing "sovereign-wealth funds" that have emerged as increasingly powerful players in global financial circles – thanks to booming oil profits that enabled them to amass a war chest of foreign currency reserves.
The funds currently control assets worth about $1.9 trillion, and analysts predict those war chests could swell to $7.9 trillion by 2011 and $12 trillion by 2015, according to estimates from Merrill Lynch and Morgan Stanley.
Transforming From Las Vegas to Financial Center
DP World's IPO could trigger billions in investments of state-controlled assets. One of the names being floated around is Emirates, the Middle East's largest airline. AHN News reported the government-owned airline is planning a $25 billion IPO, but that claim hasn't been corroborated by major news outlets. Company president Tim Clark told Bloomberg News that there wasn't a "definitive" plan to go public, adding that he estimates Emirates' value between $20 billion to $30 billion.
Bloomberg also reported that 26 IPOs in the six Gulf Arab countries raised an aggregate $5.9 billion in the first nine months of 2007, citing a. The IPOs received more than six times the amount of bids than shares on offer.
On Monday, a Gulf News editorial lauded DP World's IPO and encouraged the government to open up more of its holdings to the public:
"A public offering of shares of similar companies implies that firstly, the levels of operations have transcended beyond the local level and that, secondly, it reflects an ambitious future expansion plan. For instance, DP World's flotation is estimated to be the largest in the entire Middle East. But most important of all is the fact that the price of the shares which the public would be willing to pay would define that company's positioning in the market, as much as how it would carry out its business in the future. It would also reflect a healthy and promising state of the UAE's economy," the editorial said.
As Money Morning has reported on several prior occasions, all Dubai's investments are tied to the same reason: It is experiencing explosive economic growth from its real estate and tourism industries, but especially from its Jebel Ali Free Zone, its tax-advantaged business district. And because the state can't expand very much within its own borders [Dubai is a shade larger than Rhode Island), it is using its extra money to invest and expand internationally.
The next phase is showing investors that they can profit from Dubai's economic expansion. Previously, its wealth was more show – state-of-the-art skyline, massive tourism industry, innovative and expensive real estate ventures (Palm Islands and The World) – than go, at least from an economic standpoint.
But its economic growth initiatives are successful, Dubai's releasing of state-controlled assets will transform the emirate from the Las Vegas of the Middle East into a key financial center – and not just for the Middle East: Dubai will end up as a major financial player in the world's capital markets, as well.
News and Related Story Links:
- Money Morning:
Dubai's Investment Arm Grabs Stake in MGM
- Gulf News:
DP World's offering could trigger more IPOs.
- Gulf Capital Corp. Investments: .
United Arab Emirates.
- Economic Times:
Dubai to Invest More Than $1 Billion in Och-Ziff
- AHN News:
Emirates Plans $25 Billion IPO.
- Money Morning Investment Analysis:
State Investment Funds: Beware of the Big New Buyers.
Sovereign Wealth Funds Too Big to Ignore.
- Gulf News:
Investing in a secure future.
- Money Morning:
Dubai Employs the Latest Private Equity Strategies to Boost its Shifting Economy.
- Gulf News:
A Crucial Element of Dubai's Ambitious Development Plan.
The Palm Islands.
Dubai Ports World.