DPW IPO could kickstart new Dubai bourse

Remember UAE-based port operator DP World (DPW)? Nearly two years ago it made headlines when it acquired management operation in major U.S. sea ports. The sale was approved without much examination by the administration, only to encounter a firestorm. Many legislators and security experts were not convinced that it was such a good idea to have a United Arab Emirates-based company manage U.S. ports at the same time that the country was trying to beef up security in the very same ports. The debate resulted in tightening of the examination and approval process for foreign companies acquiring U.S. critical infrastructure assets, and in greater congressional supervision of the process. DPW, by the way, sold its U.S. port operations to AIG at a hefty profit.

DPW is making news again. Its share sale could breathe life into the Dubai International Financial Exchange, a bourse which barely attracted investor interest after a 2005 launch trumpeted as the birth of the Arab Hong Kong. State-owned DP World will become the first company to list shares exclusively on the exchange, which will be rebranded Nasdaq DIFX after U.S. bourse Nasdaq Stock Market buys a 33 percent stake under a deal announced last month. The world’s fourth-biggest global container port handler said on yesterday it would sell a 20 percent stake in what could be the Middle East’s largest IPO. Dubai, part of the United Arab Emirates, set up the DIFX to encourage foreign companies to raise capital in the world biggest oil-exporting region. The exchange is the centrepiece of a financial services hub that Dubai is building to capture some of the windfall from the region’s economic growth, driven by a quadrupling of oil prices since 2002. DIFX is located in the Dubai International Financial Center, a dollar-based business park with its own laws and courts, which has attracted banks such as Goldman Sachs Group, Morgan Stanley, and Standard Chartered. Dubai officials said they want the DIFX to ride India’s economic boom in much the same way as rise of China transformed Hong Kong from a key Asian financial hub into a global centre.

The DIFX, the region’s only exchange to allow unrestricted foreign investment, started operations just before the Gulf stock markets crashed in 2006, scuppering its initial plans to list shares from as many as 15 IPOs that year. You may recall that Dubai-based Oger Telecom cancelled a $1.25 billion IPO last November on fears that tumbling Gulf markets would hit the share price after listing on the DIFX. The DIFX now lists eleven companies, including two that have completed IPOs — Kingdom Hotel Investments and Islamic lender Albaraka Turk. All have shares listed elsewhere and the DIFX stocks barely trade. The DIFX already offers the region’s only structured products platform and more than $10 billion worth of bonds which comply with Islamic law, more than any other exchange in the world. The DIFX, with the help of Merrill Lynch, Deutsche Bank, and Morgan Stanley, started a market in structured notes in August to attract individual investors. Nasdaq and DIFX parent company Borse Dubai, run by former OMX CEO Per Larsson, agreed last month to take over Nordic and Baltic share markets owner and technology company OMX AB in a $4.9 billion deal. Under the deal, Nasdaq plans to invest $50 million and allow Dubai to use its name in the Middle East, North Africa, and South Asia.

The floatation is not unrelated to last year’s brouhaha: All proceeds from the float will be returned to Dubai World to pay off the loan made to its DPW subsidiary a year ago to fund DPW’s acquisition of U.K.-based P&O (P&O was the operator of the U.S. ports, and when DPW acquired P&O, it also acquired its port operations). DPW bought P&O last year for $6.8 billion, a 70 percent premium, in a deal that catapulted DPW to being the world’s fourth-biggest shipping group.