DP World, Dubai's global port and logistics group, is aiming to become a member of the FTSE 100 Index of shares as part of a plan to sell new equity on the London Stock Exchange, senior sources at the company say. The plan is still at an early stage and no final decision has been made, but it is believed DP World is examining a strategy to place new shares with a simultaneous rights issue and a sale of some of the controlling 77 per cent stake held by its parent company, Dubai World.
The NASDAQ Dubai-listed company announced in January it was seeking a dual listing on the London Stock Exchange this year. The cash-raising exercise, which would increase liquidity and raise the free float of equity, is aimed ultimately at making DP World a member of the FTSE 100 Index, the leading London share indicator. Such a move would open the stock to wider international interest by institutional investors.
An informed executive said the plan was likely to be discussed at imminent board meetings being held to finalise details of DP World's financial results for last year, which will be announced this month. According to one suggestion, a further 5 per cent of shares could be issued with a rights cash-call, and a simultaneous sale of up to 10 per cent of the stake held by Dubai World. That would put about 35 per cent of the company on the market, while allowing Dubai World to hold the balance to keep control.
Depending on which method is chosen for the capital expansion, about US$1 billion (Dh3.67bn) of new money could be raised for DP World and its parent. Membership of the FTSE 100 Index is dependent on market capitalisation, size of free float and potential traded turnover of shares. With that level of free float and current market value of $6.72bn, DP World would comfortably satisfy the criteria for FTSE 100 inclusion.
DP World is thought by investors to have suffered from lack of liquidity on the NASDAQ Dubai exchange, where it floated in December 2007 at a price of $1.20. The shares have consistently traded below that level and closed at 41 cents last week. The plan is independent of Dubai World's restructuring of $26bn of debt being negotiated between the company, its financial and trade creditors, and the governments of Dubai and Abu Dhabi.
But any cash raised in a share sale would be welcome to the heavily indebted parent company. A share sale would also be a test of the international markets' appetite for Dubai assets. Equity values are high on western markets, with the FTSE 100 hitting a 52-week high in last Friday's trading. "A resolution along these lines would look after the interests of Dubai World and minority shareholders at the same time, and would be welcomed by the international investment community," said David Lepper, the head of UAE research at HSBC in Dubai.
Mr Lepper first suggested a capital expansion as part of the London listing plans in a research paper last month. He examined five scenarios for a dual listing in London and Dubai involving different combinations of share placing, rights issue and sell-down by the Dubai World parent. "A rights issue seems the best solution to us," he concluded. "DP World could benefit in the medium term from a stronger capital structure, alleviating 2012 refinancing concerns, and the removal of the perceived threat of a special dividend, which the market may think Dubai World is considering."
In its financial figures, DP World is expected to confirm the improvement in world trade that was noticeable at the end of the first half last year. EFG-Hermes, the Egyptian-owned bank based in Dubai, last week initiated its coverage of DP World with a "buy" rating and a fair value target price of 56 cents a share. "The worst may now be over, as positive export data from China, India and the US have led to increasing container volumes, with many ports reporting December 2009 throughput figures ahead of expectations," the bank said in its report.