x Abu Dhabi, UAEFriday 28 July 2017

DP World seeks liquidity in London

DPW's desire to have its shares listed in London, as well as Dubai, is not a reaction to the situation at Dubai World, its parent.

Prime minister Gordon Brown meets Sultan Ahmed bin Sulayem, the chairman of DP World.
Prime minister Gordon Brown meets Sultan Ahmed bin Sulayem, the chairman of DP World.

The decision by DP World to seek a second listing on the London Stock Exchange is one of the most sensible and value-enhancing moves to come out of Dubai for a long time. It has been an objective of senior DPW executives for at least the past year, and the only real surprise is that it has taken quite so long to put it into effect. Let's be clear at the outset what this is not. DPW's desire to have its shares listed in London, as well as Dubai, is not a reaction to the situation at Dubai World, its parent company which owns 77 per cent of the shares. DPW is a commercially and financially sound operation, and is ring-fenced from the current restructuring negotiations between Dubai World and bank creditors owed US$22 billion (Dh80bn). It is very firmly in the box marked "good Dubai World".

Neither is the London move necessarily a death-knell for Nasdaq Dubai, the exchange on which the shares have been traded since 2007. True, their performance on ND has not been that impressive, still lingering round the 40 cent level compared with a flotation price of $1.30, but that is largely a function of the market itself, rather than the fundamentals of the DPW stock. The structural problem is anyway being addressed by the proposed merger between Dubai Financial Market and Nasdaq Dubai, and DPW will retain the Dubai listing.

Rather, the move to London is a commendable attempt to inject into DPW shares what they have lacked on Nasdaq Dubai financial liquidity. Although they are Nasdaq Dubai's biggest traded stock, in global terms the amount of trade in DP World shares has been minuscule. The main reason for this is that the big institutional players, who would normally want a slice of one of the leading ports and shipping companies in the world, are deterred (or often absolutely forbidden by their articles of association) from investing in "emerging" or "frontier" markets such as Dubai.

Having them traded in London wipes out that disadvantage at a stroke. Now the big global players can evaluate, research and trade DP shares just as they can any US or European-owned market leader. Finally, although it must be repeated that the London initiative is not a reaction to the problems at Dubai World, it might have the desirable side-effect of helping to solve them. The government-owned conglomerate's stake in DPW is worth some $6bn, and it could sell a big chunk of that on the global markets, either in a new flotation or a trade sale, and still retain control. If, as could be expected, the London listing leads to a lift in the share price, that proposition becomes all the more attractive. A windfall of $3bn or so from the sale of a further 25 per cent stake in DPW would be very welcome indeed for cash-strapped Dubai World.

One of the recurring themes of the new decade, and one which will have more than a passing relevance for the UAE, will be the issue of sovereign debt.

Nouriel Roubini, the Turkish-American economist who predicted the credit crisis, believes over-borrowed governments are the world's next big economic problem, and already late last year there were signs that his fears were justified. The problems of Dubai in November, though not strictly speaking sovereign-debt related, sparked fears that Greece, Hungary and the Baltic states might default on their government-issued debt.

Other previously blue-chip countries, including Britain, have also come under pressure in the global debt markets and could have their credit-worthiness reassessed. So it is interesting to contrast the attitude of two small bit-players in the ongoing debate. On the one hand, the president of Iceland earlier this week told British and Dutch investors that he would not allow his country to give back some $5bn of assets lost by public investors in those countries when Iceland's banks went bust in 2008, despite the fact his parliament approved the handover.

Meanwhile, in Kuwait, the parliament has approved a $24bn government bail-out of losses incurred by its own citizens during the credit crisis. The Kuwaiti government has said such a move is grossly irresponsible, citing the risk of "moral hazard", and said it would not enforce the decision. From one of the oldest democracies in the world (Iceland), to a country that is making tentative moves towards more representative government (Kuwait), and across very different cultures and political systems, the explosion of global indebtedness will continue to reverberate. Dubai's problems are just one facet of that worldwide phenomenon.

@Email:fkane@thenational.ae