Agora Financial’s Rude Awakening

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Dubai, United Arab Emirates

• Beyond the crisis and into the global market of opportunity,
• Whipping boy to wonder boy – the DP World story so far,
• A golden way to ride the faltering greenback and more…

Joel Bowman, reporting from the Middle East…

Today we take a brief break from the doom and gloom stories of the credit crunch and its preceding - and ongoing - sub-prime meltdown. We pause from our usual coverage of the flailing dollar and the record prices of the commodities we are expected to buy with them. We rest the tired stories of the Empire’s crumbling infrastructure and the mounting debt that it cannot service.

Instead, we turn our attention to a success story. We cast our eye towards the alluring sparkle of opportunity. But there’s just one catch: you have to look beyond the borders of the Empire to realize it…and far beyond the Empire’s ports…

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Keep on Shippin’
By Joel Bowman

Two years ago, the U.S. drowned a business deal with an Arabian owned container port operator. Two days ago, the company, now the fourth largest of its kind in the world with 42 terminals in 22 nations across 6 continents, released shares in the largest initial public offering ever in the Middle East.

The history of the kafuffle over the Dubai Ports World deal, in a (very small) nutshell goes something like this…

Shareholders of Peninsular and Oriental Steam Navigation Company (P&O) approved the sale of their company to Dubai Ports World (DP World) in February of 2006. The sale of a British company to an Arab-owned one may have gone relatively unnoticed in the U.S. press had it not been for the fact that the deal meant DP World would now assume control of the leases P&O handled in the U.S. These contracts included operations in six major U.S. ports (New York, New Jersey, Philadelphia, Baltimore, New Orleans, and Miami) in addition to 16 other, smaller ports.

Because of issues over national security the whole agreement had to go through a process whereby the specifics of the deal be presented to the Committee on Foreign Investment in the United States (CFIUS). DP World had already approached the committee in October of 2005 in an effort to frontrun any potential obstacles and, after P&O approved the sale, the deal was reviewed and approved by the committee.

Deal done? Not quite…this was just the beginning.

Eller & Company, a Florida firm that had joint ventures with P&O, expressed concern over becoming an “involantary partner” with the Arabian company. Eller & Co. took advantage of the post 9-11 state of fear and ran with the story to Democratic New York Senator, Charles Schumer, and a reporter with the Associated Press. The whole thing blew up in the press shortly after and both Republican and Democratic representatives became deeply divided over the issue, both within their own parties and against each other.

Some argued that ceding control of America’s ports to an Arab firm constituted a direct threat to national security. Others pointed out that DP World had no known terrorist connections and had operated within all the necessary legal framework required to obtain the leases.

Republicans Bill Frist and Dennis Hastert were among the most vocal in their opposition to the deal. Frist, for his part, released a statement which read, “If the administration cannot delay the process, I plan on introducing legislation to ensure that the deal is placed on hold until this decision gets a more thorough review.”

One representative, Sue Myrick (R-NC) , took the issue one step further, writing a letter directly to the president. The letter read, simply: “Dear Mr. President: In regards to selling American ports to the United Arab Emirates, not just NO — but HELL NO!”

Daniel T. Griswold, director of the Cato Institute’s Center for Trade Policy Studies, said mishandling of the affair would “send a chilling signal” to friends both in the Gulf region and beyond. “It is just assuming that if a company is from the Middle East it is de facto disqualified from investing in the United States, and I think that is a terrible message to send,” he argued.

On March 8, 2006, a House Panel voted 62-2 to block the deal. Under mounting pressure to abandon its investment, Dubai Ports World eventually sold P&O’s American operations to American International Group’s asset management division, Global Investment Group, for an undisclosed sum.

Fast forward to this past weekend…

Speaking from a podium at the Dubai International Finance Centre on Sunday, Sultan Ahmed Bin Sulayem, Chairman of Dubai World, announced that 20% of DP World would be floated exclusively on the Dubai International Financial Exchange. The IPO, which is the largest in the brief history of the exchange, set an indicative price of between $1 and $1.30 for the 2,882 billion shares. A 498 million share overallotment will cater for any additional interest. If sucessful, the total IPO will be worth about $4.32 billion.

As for the future of DP World, it looks rather bright. The company outgrew its market by almost 2:1, clocked over 18% growth during ’06. Expansion plans are set to double capacity over the next decade as mammoth demand from the nearby emerging markets of China and India clamor to ink deals with the Arabian company.

Just last month DP World finalized 25-year concession deal to develop and operate Dakar port in Senegal and acquired a 90% stake in Sokhna-based Egyptian Container Handling for $670 million.

After the conference, I spoke with the company’s Senior Vice President of Corporate Strategy, Yuvraj Narayan. I asked him where he sees the key regions of the future.

“You’ve got to look at the real growth regions, like China, India and here in the Middle East,” he told me. “But what will the growth areas of tomorrow be? Latin America and Africa.”

DP World’s decision to list exclusively on the DIFX is consistent with the mantra that has served so well for the company’s home city of Dubai: If you build it, they will come.

Maybe DP World wouldn’t have considered a duel listing with the NYSE even if the P&O deal went through smoothly…maybe they would have. One thing is for certain; the icy response they received over their last foray into the U.S. markets certainly wasn’t interpreted as a friendly welcome.

American’s were petrified that national security would be compromised if an Arabian company were allowed control of their ports. Now, if U.S. investors want to get in on DP World’s enviable growth opportunity, they’ll have to allow the Middle East DIFX bourse take control of their money.

A couple of centuries ago, a man by the name of Thomas Jefferson made a timeless statement that seems as pertinent now as it was then.

“Commerce with all nations, alliance with none, should be our motto.”

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Rude Endnote: Feel free to sink your editor’s boat by casting any hate mail toward the address provided below. We’ll return to the usual diet of dollar vs. gold, bull vs. bear tomorrow.

Cheers,
Joel Bowman
Rude Awakening