Dubai and Singapore’s bidding war over P&O hots up

The multi-billion dollar bidding war between Dubai and Singapore over the British ports and ferries operator P&O could be settled this week.

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By  Andrew White Published  January 22, 2006

The multi-billion dollar bidding war between Dubai and Singapore over the British ports and ferries operator P&O could be settled this week. Dubai Ports World (DPW), owned by the emirate's government, fired the first shot when it made a bid of US$5.91 billion in November 2005. However, Singapore’s PSA has hit back, approaching P&O with a conditional counter offer of US$6.21 billion. A formal offer could be submitted within the next few days. PSA’s conditions were that it be allowed to complete satisfactory due diligence, that its board give final approval, that P&O’s directors withdraw their recommendation of the DPW offer, and that P&O’s pension trustees approve the offer. PSA has operations in 11 countries and is the world’s second-largest ports group. By contrast, DPW was formed as recently as September with the amalgamation of the Dubai Ports Authority and DPI Terminals. The company’s container throughput is roughly a third of what PSA handles. However, if DPW were to acquire P&O — currently the world’s fourth-largest ports group — the industry landscape would shift dramatically. Not only would DPW immediately become the second-largest player in the marketplace, it would also have secured key ports in India and Australia — markets in which fast traffic growth is anticipated. P&O’s roots were established in the aftermath of the battle of Waterloo in 1815. It swiftly became the nation’s premier shipping group, earning iconic status at the height of Britain’s maritime glory years, and being incorporated by royal charter in 1840. However, it is predicted that — irrespective of who buys the company — the 165-year-old maritime legend will be broken up after its takeover. In order to help fund the massive bid, Dubai Ports, Customs & Free Zone Corporation (PCFC) have launched the world’s largest sukuk, or Sharia-compliant bond. What was intended as a US$2.8 billion issue has instead rocketed to US$3.5 billion, after an overwhelming response from investors. Lead-managed by Dubai Islamic Bank (DIB) and Barclays Capital, the distinctive sukuk is also the first convertible instrument in the Islamic finance market. The issue is just one of a series of initiatives designed to boost the PCFC’s corporate activities, ongoing business development needs and expansion plans. Its unique convertible structure allows partial redemption of up to 30% in the form of equity shares of the PCFC entities as and when they go for a Public Equity Offering within the next three years. If no Public Equity Offering takes place prior to the final redemption date, investors will be compensated with a higher yield. The sukuk offers a return of 7.125% per annum if a Public Equity Offering happens during the first two years, and a higher return of 10.125% per annum on any amount of the sukuk outstanding at maturity, which have not been redeemed from equity offerings. The structure of the sukuk — and the attractive potential yield — has ensured the issue has been subject to very high demand. The previous largest sukuk was Dubai Civil Aviation’s US$1 billion issue, which was also structured and lead-managed by DIB last year. Saad Abdul Razak, CEO of DIB, claimed that the breaking of their own record demonstrated the bank’s formidable expertise in the field. “Building on previous successful sukuk issues over the past year, DIB has further strengthened its position as the world’s number one arranger of sukuk,” he said. Having amassed a considerable war chest, D-Day looms large for DPW. PSA is likely to make a firm offer — or withdraw — within the next few days. Each has the backing of a hugely wealthy government, eager to invest abroad. Their respective nations are aiming to become global players — the burgeoning subcontinent will be their battleground.

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