Last November, when Dubai Ports (DP) World raised almost $5 billion in the Middle East’s biggest ever initial public offering (IPO), it valued the group, the world’s fourth-largest port operator, at $21.6 billion and captured an astonishing $60 billion of interest.
The deal was nothing short of astounding: it was the largest ever IPO in the maritime sector and was designed to market the financial hub’s young bourse, the Dubai International Financial Exchange (DIFX), as the first ever government privatization to be solely listed domestically.
Attracted to the long-term lucrative nature of infrastructure assets in growing economies, demand for DP World’s shares were strong, defying the global credit squeeze. The 15 times oversubscription rate allowed lead managers Deutsche Bank, Merrill Lynch, Millennium Finance Corp and Shuaa Capital to price the transaction at the top end of the $1.00–1.30 price guidance.
The greenshoe option allowed the leads to increase the deal from $4.22 billion to $4.95 billion, representing 23% of the company’s free float from the initial 20%, delivering a market capitalization of $21.6 billion. The transaction was priced at 19.4 times 2008 EV/Ebitda – representing a 25% premium to the IPOs also launched that month by HHLA, Germany’s main port operator in Hamburg, and Russia’s Novorossysk Commercial Seaport. “DP World was priced with such premium due to its scale benefits, growth profitability and as a risk diversification play since it is a global port operator,” says Iain Macleod, head of EMEA transport and infrastructure finance at Deutsche Bank.
Middle East and North African investors bought 41% of the shares, the US 23%, Europe ex-UK 7%, the UK 17%, Asia 10% and others 1%.
The proceeds of the deal went to Dubai World, its government-owned holding company, with 25% of the shares given to holders of DP World’s sukuk issued in January 2006 to finance the purchase of P&O, the UK ports and ferries operator. Institutional investors grabbed a remaining 65% of the deal with retail buyers taking 10%.
In the end, fears that no parallel London global deposit receipt would spark investor flight due to illiquidity concerns at the DIFX proved unfounded, says Lorcan O’Shea, head of equity capital markets for the Middle East at Merrill Lynch in Dubai. “Given the levels of demand generated – both regionally and globally, it is hard to argue that the lack of an international listing had an impact on the marketing of the transaction.”
“It was by far the biggest trade that has happened on the DIFX, which made our job more challenging in the sense that we needed to market DIFX as well as the stock itself,” says Macleod. But in the end, the leads assured investors that a good regulatory framework was in place, citing the Clearstream settlements system.
Despite the success of the offering, DP World’s shares have also been rocked by the international credit market crisis. “Companies listed on the DIFX are more international than domestically listed companies – and thus are impacted by global trends to a greater extent – however, the underperformance of the DP World stock looks overdone,” says O’Shea.
International capital volatility takes no prisoners, even for the best of the bunch.