London Stock Exchange stake sale earns Dubai huge profit

Essa Kazim, chairman of Borse Dubai. Pawan Singh / The National

Dubai has made a profit of billions of dirhams on the sale of its eight-year-old stake in the London Stock Exchange.

Essa Kazim, the chairman of Borse Dubai, confirming the disposal, said the shares had been sold at a price near an all-time record for LSE stock. “What with currency gains and dividends, we’ve made a good profit. It’s an example of a Dubai overseas investment that has made a profit for the government,” he said.

The shares are believed to have been sold in a placement transaction arranged by Bank of America Merrill Lynch, Barclays and Nomura. At a slight discount to market price as is normal in market placement deals, they fetched about £1.4 billion (Dh7.62bn).

Dubai bought the shares at the height of the pre-crisis boom in 2007 for about £790 million. Even excluding dividends and currency gains, the sale proceeds produce a profit of more than Dh3.5bn for Borse Dubai.

LSE shares have soared in the past year – more than 30 per cent ahead – on the strength of the strategic shift by the chief executive Xavier Rolet towards greater diversification of investment asset classes.

The shares touched an all-time high of £25.83 apiece on March 20.

News of the Dubai sale drove them down 8 per cent in trading yesterday, to around £23.40 each.

“I think LSE will perform better going forward because of the strategy, but the analysts indicated that the shares were at a full value and on a high multiple,” Mr Kazim said.

When Borse Dubai took the stake, LSE was under siege from rival stock markets which were trying to take it over. The Dubai stake – and a smaller stake held by Qatar authorities – were seen as a defence against potential bidders from America, Germany and Australia.

The stake was labelled a “strategic investment” by Dubai, but the LSE never gave board representation to Dubai executives.

Although welcoming the Dubai investment as a stabilising influence, LSE, under the chairwoman at the time, Clara Furse, is believed to have been deterred from a closer relationship by the fact that Borse Dubai was also a shareholder in Nasdaq OMX, one of the companies that had bid for LSE, and which had also helped set up the international market in Dubai, Nasdaq Dubai.

“It was a strategic investment that became a financial investment,” Mr Kazim said.

A statement from the LSE said: “LSE notes the oversubscribed placing by Borse Dubai of its entire 17.4 per cent stake in the group.

“LSEG has grown, strengthened and diversified significantly since Borse Dubai became a shareholder. LSEG would like to thank Borse Dubai for their long-term exemplary support as a shareholder during that period.”

In a market placement, the arranging banks conduct a type of “book building” process in which buyers are found for the shares at the optimum price. The Borse Dubai stake would have gone to a number of investing institutions rather than being bought by a single investor or a few large investors.