x Abu Dhabi, UAEFriday 19 January 2018

The evolution of an icon

Dubai World: a history A little known Gulf company led by a young executive achieved global status despite the odds.

A little known Gulf company led by a young executive achieved global status despite the odds, becoming one of the world's largest ports operators and an innovative developer of massive projects that helped shape modern Dubai. A notice appeared on October 26, 1987 in a daybook sent to reporters in Manhattan: "Sultan bin Sulayem, chairman of Jebel Ali Free Zone at Dubai and trade delegation to offer American business leaders a new perspective on the Middle East," it said.

It was one of the first of many visits to the US and other western countries in the late 1980s and 1990s to tell the Dubai story. The story was different then: Dubai was not known as a safe haven for business in the Middle East and Dubai Government officials constantly had to address the region's political instability. The Iran-Iraq war had just ended in the late 1980s, and the first Gulf War was to follow.

Little could they have known that 20 years later, what started as a small ports operation would eventually morph into a large conglomerate with property and financial assets spanning the globe. The equation changed dramatically following the first Gulf War, when a global boom in trade and lending boosted the profits of port operators in Dubai and helped usher in the emirate's rapid rebirth into a thriving hub for business, finance and property development.

Convinced, perhaps, by the success of the ports and the elevated ambitions Dubai's leaders, international lenders and investors eagerly bet on Dubai's ascendancy. In doing so, they played a central role in incubating a network of companies that in 2006 would be placed under the umbrella of Dubai World, the holding company which this week said it is seeking a standstill agreement from creditors as it struggles to restructure.

The kernel of what was to become Dubai World lay in its ports. Before 1991, Dubai had competing government-owned ports at Jebel Ali, west of the city centre, and the older Port Rashid near the Dubai Creek. That April, however, the Government announced that it would merge the two operators to form the Dubai Ports Authority (DPA), with Mr bin Sulayem as the chairman. The Government invested heavily in ports throughout the 1990s and spent time and money expanding and promoting them to international firms needing a foothold in the Gulf. A raft of companies set up there, from Japanese car makers to granite tile traders, and Dubai's ports quickly became major stopover points for international shippers. Container volumes grew into the millions and Dubai by 1998 climbed up the global rankings to become one of the 10 busiest ports in the world.

Spurred on by growing competition from new ports in Aden, Yemen and Salalah in Oman, in 1999 the DPA made its first foray outside of the UAE with an agreement to manage ports in Beirut. Later that year, the DPA signed a similar agreement to run the Jeddah port. In 2000, it took over operations in Djibouti and in 2003 it moved into Visakhapatnam in India. Those foreign ports were run by a subsidiary called Dubai Ports International.

In 2001, the DPA was merged with Dubai Customs and the Jebel Ali Free Zone Authority to form the Ports, Customs and Free Zone Corporation. It was also looking to expand its international footprint, beginning a process that led to it becoming one of the world's largest port operators. It acquired ports in Romania and then in China and Korea in 2004, followed by deals to operate ports in Argentina, Hong Kong, Russia, Australia, Belgium, France, Canada and the UK, among many other countries. Then DP World was founded in 2005 from the merger of all of Dubai's port operations.

Meanwhile, with the backing of the Dubai Government, Mr bin Sulayem began to expand into property, a business his family had been involved in for decades. In 2001, he had became the chairman of Dubai Palm Developers, a company that would later be folded into Nakheel, which would in turn become part of Dubai World. The company was to develop Dubai's now iconic Palm islands - Palm Jumeirah, Palm Jebel Ali and Palm Deira - out of sand dredged from the Gulf to make way for bigger ships at the ports. Palm Jumeirah alone cost more than $12bn to build. Two years later, Nakheel launched the $14bn The World project, a collection of artificial islands in the shape of a world map off Dubai's coast.

Istithmar, the private equity and venture capital investment firm formed in 2003 would also become part of Dubai World. Istithmar, now known as Istithmar World, owns stakes in the luxury retailer Barneys New York and Cirque du Soleil, as well as Kerzner International, the hotels operator, and Standard Chartered Bank. In March 2006 Dubai World was formed as a combination of three main government-owned firms: Nakheel, Istithmar and DP World. By then, DP World had acquired P&O, a major operator of ports in Asia and the US, as well as UK ferry services, and was bigger than ever.

Nakheel was making speedy progress on its Palm Islands and The World projects and had just issued a $3.52bn Islamic bond to help finance further construction. And the Dubai Multi Commodities Centre, a government-owned company that was responsible for the Jumeirah Lakes Towers development across from the Dubai Marina, was doing a brisk business. Leisurecorp, a global developer of leisure properties, was founded the same year.

It was the middle of the Dubai boom and Dubai World and its companies borrowed heavily to keep the expansion going, amassing roughly $24.27bn of debt, by an estimate from Deutsche Bank, and about $60bn in total consolidated liabilities. The global economic crisis and the end of the property boom last year dragged prices down by up to 50 per cent in some places and left Dubai World's property companies short of revenues just as the needed cash to pay off their borrowings. Speculation earlier this year centered on Dubai World seeking to refinance its debts, but with the deadline for Nakheel's sukuk repayment approaching, sentiment shifted towards the idea that they would be paid off on time.

While DP World continues to make money despite a fall-off in global trade, the changing economic winds put Dubai World's property firms - Nakheel, the DMCC and Limitless, which was founded in 2005 - in a difficult financial position. That led in part to the announcement this week that Dubai World would seek a six-month reprieve on debt payments pending a restructuring. @Email:afitch@thenational.ae