DP World, the largest port operator in the Middle East says its parent company, Dubai World, has received an approach from a private equity group about buying a stake in the company. A deal could trigger renewed interest in the region's private equity industry, which has seen buyout deals slow to a trickle since the onslaught of the financial crisis.
The discussions with the private equity company "may or may not result in a transaction regarding a minority stake in DP World", the Dubai government-owned company said today in a statement posted on the NASDAQ Dubai bourse website. Abraaj Capital, one of the region's biggest buyout firms, may be seeking to acquire a stake in the company, according to a source familiar with the matter. Abraaj is interested in acquiring a significant minority stake, the source said, adding that the numbers were still being worked out.
DP World, which is 77 per cent owned by Dubai World, issued a statement to the stock exchange confirming it had received an approach from a regional private equity firm, after its shares surged more than 14 per cent last Thursday. A stake in DP World would allow Abraaj to take advantage of any rebound in global container shipping, after the sector collapsed last year with the global economic downturn. The company owns 49 ports around the world and handled 46.8 million 20-foot equivalent container units last year, an increase of 8 per cent on 2007. Any deal would mark the first time a Dubai government-owned company has sold a stake to a private equity firm.
However, a sale may also affect DP World's credit rating, said Martin Kohlhase, an analyst at Moody's in Dubai. "We would have to assume less government support, the smaller the government stake is," he said. Mr Kohlhase said that it was too early to comment in detail as it was still unclear whether Dubai World intended to sell a stake, and how big such a stake would be. Last month, Moody's confirmed DP World's "A1" rating, albeit with a negative outlook. Government-related enterprises such as DP World benefit from the assumed support of their owners.
The economic downturn has hurt DP World as global trade has declined sharply, dragging its shares to an all-time low of US$0.17 (Dh0.62) in March, down from $1.30 when it floated in Nov 2007. "The volume deceleration shows little sign of easing in the foreseeable future," DP World said recently, adding that it would consider all available options to address the fall in its share price. The stock closed 1.4 per cent higher today and has gained 21.7 per cent this year.
Sharp declines in property prices and the dearth of liquidity have made it hard for government-owned entities to repay their loans and pay their clients. The situation has been alleviated by a $10 billion bond. Nevertheless, Nakheel, the developer also owned by Dubai World, has indicated it may be forced to renegotiate the terms of a $3.5bn sukuk due in November. Abraaj, which is based in Dubai and has about $6bn in funds under management, is one of the largest players in the Middle East and number 54 worldwide, according to PEI Magazine. The chief executive, Arif Naqvi, has pledged to complete an average of four to five deals annually.
Last month, the company bought a stake in the Dubai-based publisher Mediaquest, its first deal this year. In 2006, Abraaj bought a 25 per cent stake in Egypt's EFG-Hermes, the regional investment bank, which it sold for $1.1bn - doubling its money - to Dubai Financial Group one year later. In June 2007, Abraaj spent $1.4bn on the Egyptian Fertilisers Company (EFC), Egypt's largest private sector fertiliser manufacturer and exporter, in what was the biggest private equity acquisition in the Middle East and North Africa until then.