Wednesday, February 22, 2006

Dubai Ports

There are some topics that blogs must comment on, and since I really don't have much of a problem with student e-mail, not even when I taught Stars for Poets, I supposed I'd better ramble about ports.

So, DPW bought port operation rights from P&O wholesale, including operational management of all or some (in some cases) of 6 US container ports, for about $6 billion.
This was somehow approved without any review anyone can recall and Dubya has his knickers in a twist 'cause congress critters are getting uppity and saying mean things about Dubai.

We're talking 6 large east coast ports. This, by the way, goes back to november 2005, and Dubai was competing with a Singapore company for the rights. We're not just talking US ports, BTW, but also Canadian (Vancouver) and European ports.

Now DPW is backed by oil cash and Dubai is sitting on a lot of money with no place to invest.
Maybe they're anticipating lucrative US Army contracts with synergy with Asian ports they also own...
But, here is P&O 2004 financial report shows that while the port profits are strong, at 150 million pounds and growing, compared with 170 million pounds for PO as a whole, only 10% of the profit came from the US ports. Quite frankly the US operations suck, and are underproductive, the profit is mostly from Asian ports!

So, solution: it would actually pay for DPW to cut out the US ports and just take over the rest of P&O ports worldwide. It is good business and gets them and their buddies out of a political jam. Win-win? Who could say no?

PS - DPW is paying over the odds for P&O, and the port operations are the most profitable division from the looks of it.
Now, cash earning investments are hard to find right now, but DPW must anticipate significant increases in profit to make the deal worthwhile - or they think the can signficantly cut operation costs on current faciltiies.
After all, the market rationally valued P&O at half that price 6 months ago...
Curious - DP World intends to pay for P&O using bonds raised on the financial markets, but are also mentioned as being very cash rich.
Company was only created in Sep 2005, and immediately moved to take over P&O. Curious

Again, maybe they are anticipating synergy with increased traffic between the ports they already own, like in the Middle East, and the East Coast ports - lots of preloaded containers to rush over, money no object.

Here is the DP World web site - they have no US presence and negligible European presence currently - from a business perspective they may in fact get synergy with their current Asian and African operations. Except having East Coast ports is bizarre, their synergy would be with West Coast US ports. Latin American presence is small, Venezuela and Dominican Rep. Hm, they bought into Hong Kong and Qingdao last year, just after buying CSX Terminals in the US, ah, that is how they became a global operator.. That is very aggressive acquisition. Also bought a greenfield site in Turkey for port development in Nov 2005. CSX was done on credit as well, where does their reputation for being cash rich come from?

They are partners with Jafza - some sort of free-trade zone consultants

And some company called "Crane Services" - makes sense but can't find them. Ah, it is a deal with Konecranes (Finnish?!) and Kanoo group of UAE - so DPW vertically integrates, they set up the dockside cranes as well as manage operations.

This company became an international operator in little more than a year by buying up existing companies and consolidating them, as an entity they have very little port operation experience.

The Kanoo group looks interesting - they do a bit of everything, shipping, travel, security, oil, machinery...


Blogger Steinn said...

These you mean

Friend of mine from uni was in UAE for a few years. Did well.

So here is the issue from this side:
first of all the clearing of the P&O deal by the cognisant US agency appears not do have been done with due diligence. That plays badly in the US right now, especially given the administration rhetoric over the last few years. People are being asked to accept warrantless wiretaps and detention without trial, but DP World doesn't have to keep a copy of its corporate records in the US?

DP World is a family business as I understand it, privately held. It does not have the usual corporate duty to shareholders. It is also effectively under control of a foreign government. This would normally lead to stronger investigation into the security concerns, not less.

Some things about this seem strange - DP World in a new company and moved very aggressively from being a regional player to being a world wide operator. They are not experienced international port operators, they bought up and swalloved expertise and access.
The claim is that they are cash rich and looking for good investments. Now maybe CSX and P&O were grossly undervalued, despite their efforts under previous admin to dump assets and consolidate on profitable sectors. But, the purchases are actually funded by loans, not UAE investment cash, and self-secured. And, either they are expecting a huge increase in profitability, or the current profits from the purchases cannot actually serve the loans (assuming they got moderate risk corporate bonds secured only by the corporation assets).

Maybe DPW is a corporate genius taking a long view and will become a $20 billion++ company with billion dollar profits per year. Or not.
But the details of the company and the transaction are being misrepresented. And the people with oversight responsibility are visibly not being diligent and in several cases are grossly conflicted.
Maybe that is just petty corruption, but post 9/11 it does not play well.

12:57 PM  

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