A new look at Dubai’s investment powerhouse

Previous estimates of asset value, notably by the US organisation the Sovereign Wealth Fund Institute, put Investment Corporation of Dubai at about $70 billion. It is apparent from the prospectus that was a gross underestimate.

Any day now, Investment Corporation of Dubai (ICD), the emirate’s flagship investment vehicle, will announce the take-up of a US$1 billion-plus bond issue the global financial markets have been considering for the past couple of weeks.

International investors will base their decision on the information contained in a weighty, 428-page prospectus sent to investors when the debt-raising plan was first announced. The document is essential reading if you want to understand the current economic and financial standing of ICD, and the emirate, as it embarks on another round of breakneck growth.

The first thing that becomes clear from the start is the sheer financial size of ICD, and its pre-eminent place within Dubai’s strategic economic plans.

Previous estimates of asset value, notably by the US organisation the Sovereign Wealth Fund Institute, put ICD at about $70bn. It is apparent from the prospectus that was a gross underestimate.

Total assets at the end of last June (the last time they were calculated) stood at Dh587bn, or about $160bn. Given the economic and market boom of the past year, that value can only have increased.

To give that figure some kind of perspective, that is far bigger than IMF estimates of Dubai’s GDP (about $105bn) and also bigger than the combined debts of government and government-related enterprises (about $100bn by most estimates.)

ICD is also a cash-generating machine. Profits for the six-month period to last June came to $2.25bn, and the company generated net cash of $308 million. It had cash and deposits with banks of some $25bn at that time. Liabilities are more than adequately covered.

It is clear that ICD is of fundamental importance to the economy of Dubai, but what kind of company is it? The SWF Institute includes it in its rankings, but the document makes clear that, in one important respect, it should not be regarded as a sovereign wealth fund.

Although ICD is wholly owned by the Government of Dubai, “the government is under no obligations to provide financial support to ICD”.

Investors in Dubai World’s infamous 2009 sukuk complained that the relationship with the Government had not been made clear; they thought their loans were guaranteed. Well, this time, it is crystal clear: potential bond and sukuk holders will not have their investment underwritten by the Government at all.

But the prospectus also argues that ICD’s contacts at the top level of Dubai’s Government are one of its main sources of business strength, as the “principle investment arm of the Government” with a “fundamental role in implementing economic strategy”.

ICD is a major employer, with some 100,000 people working for its operating companies, although only 40 staff members at the group level.

The operating companies themselves are grouped into seven sectors: financial, transportation, energy, industrial, property and hospitality, retail and “other” (a comparatively small funding operation).

They cover the broad front of Dubai’s economic activities through the “three Ts” – trade, transport and tourism, owning such money-spinners as Emirates Group, the airport free zone and duty free business, as well as a 30 per cent stake in the premier property developer Emaar and 100 per cent of the World Trade Centre complex. There are also sizeable energy and industrial portfolios, including Dubai Aluminium and Emirates National Oil Company.

But what strikes you most about the portfolio breakdown is the size of the financial services element.

This comprises the 55 per cent stake in Emirates NBD, Dubai’s leading lender, as well as big holdings in Dubai Islamic Bank, Union National Bank and Commercial Bank of Dubai, as well as other smaller financial institutions.

Through its 89 per cent stake in Borse Dubai, ICD owns valuable holdings in Nasdaq OMX and the London Stock Exchange, worth hundreds of millions of dollars.

In fact, as a pie chart in the prospectus shows, ICD’s financial assets make up the majority of its value, comprising 52 per cent of aggregated assets. (The next biggest sector is transport – Emirates – with 22 per cent.)

So ICD could be viewed as a gigantic, well-capitalised bank, with strategic holdings in some of the region’s biggest non-financial corporates. That should comfort potential bond investors.

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