DIC deal marks start of a new chapter

Back in the heady days of 2006 and 2007, there appeared to be no limit to the ambitions of Dubai International Capital. But the economic downturn means asset sales are now a must.

In November 2007 DIC paid about $1.5bn for a stake of about 3 per cent Sony through its its Global Strategic Equities Fund. It too was sold as the pressure built on DIC during the global financial criShow more

Back in the heady days of 2006 and 2007, there appeared to be no limit to the ambitions of Dubai International Capital (DIC).

The deals were coming thick and fast, and the resources appeared inexhaustible.

"They told us that they had access to unlimited funds. In the climate back then, we believed them," one banker, who asked to remain anonymous, said recently.

It was a measure of the self-confidence and world vision of the investment group in those days that it called one of its units the Global Strategic Equities Fund and backed it with US$3 billion (Dh11.01bn) of resources.

This fund went on to buy a collection of multibillion-dollar stakes in some of the best known companies in the world, such as Sony, Daimler and EADS, the owner of Airbus. All these stakes were sold when the pressure of the financial crisis began to tell on DIC.

"The idea was to give Dubai a strategic portfolio of the most solid, reliable names in global business, but most of it had to be liquidated when times began to get tougher after 2007," said one banker, who asked to remain anonymous.

The strategy was the brainchild of Sameer Al Ansari, a Kuwaiti-born financier appointed by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, to launch and head up DIC in 2004.

The new company was made part of the Dubai Holding conglomerate, personally owned by Sheikh Mohammed, with blue-chip interests across the emirate in hospitality, property, business parks and finance, and for a while, all looked good for the new enterprise.

In an early example of deal-making prowess, Mr Al Ansari made a profit for his shareholder of hundreds of millions of dollars on the £800m (Dh4.64bn) purchase of Madame Tussauds when he later sold the London waxworks museum and other leisure attractions to Merlin Entertainments.

As if to prove that DIC was not going to be just a collection of corporate baubles, it also invested in some solid industrial companies, such as the British engineering firm Doncasters Group, as well as the engineer Mauser and the aluminium products group Almatis (both of Germany). It balanced the portfolio with cash generators such as Travelodge, a budget hotels group based in the United Kingdom.

Via its sponsored funds unit, DIC invested in infrastructure projects in the Middle East and North Africa with two funds totalling $800m.

In the middle of this frenzy of portfolio-building, Mr Al Ansari also found time to mount an attempted takeover of the English Premier League football club Liverpool, which he had long supported. He won the fans' support, but not that of the Liverpool management, which eventually backed a rival American bid.

But the credit crunch of 2007 and the financial crisis the following year exposed the flaws in the investment strategy. Like many private-equity investors, DIC had borrowed large sums to make acquisitions that were priced at the top of the boom market.

When liquidity began to dry up and equity asset values plummeted in 2008, DIC was faced with a funding gap that had to be filled by asset sales and a refinancing. Mr Al Ansari left DIC in the summer of 2010.

Yesterday's announcement that the company has reached final agreement with creditors on the restructuring of outstanding loans totalling $2.5bn represents another phase in the DIC cycle.

People close to the company say the strategy now is for an orderly programme of asset disposals, when justified by valuations, to return capital to the shareholder and creditors.