Is DP World right to list its shares in London?
Posted on 07 January 2010 with no comments from readers
Having made a huge issue out of not listing on another major global stock market just a little over two years ago, DP World is now changing direction and expounding the virtues of a cross listing with London to boost its floundering share price.
The original initial public offering was very successful from the point of view of the sellers. Dubai Government pulled in $5 billion, almost paying for the $6.8 billion spent to buy UK port giant P&O a year earlier.
IPO disaster
For the IPO investors DP World has been an unmitigated disaster with the share dropping from $1.30 to a low of 18 cents last March and recovering to around 45 cents recently. You might therefore expect long suffering shareholders – who clearly overpaid in the IPO – to be enthusiastic about the London cross-listing.
However, the danger that lurks ahead is precisely the same one that haunted the IPO. Then as now financial markets were too high – or so this columnist argued at the time on AME Info (see this article).
Listing on the London Stock Exchange will not prevent DP World shares from taking a bashing if global stock markets take a tumble again. Indeed, it is arguable that local stock markets are much closer to fully discounting market realities, and that this is precisely the wrong time to list on global markets.
That is not what the salespersons from the LSE will be arguing vociferously. But then they would say that wouldn’t they?
A wiser counsel to local quoted companies seeking a global stock market listing would be to wait until markets have corrected from their recent sudden upsurge. Otherwise shareholders are going to get another nasty experience, and they will not be best pleased.
Capital raising
That would then make it more difficult and not easier to raise new capital on the back of a foreign stock market listing. Everything has its time and place.
Perhaps DP World will prove the doubters wrong, but its track record to date for maintaining shareholder value is awful. Its assets, on the other hand, are first-class and ought to represent a real bargain at current valuation levels.
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I don’t know about that, but James Chanos, the famous short seller who predicted Enron, will soon give a presentation in London, in which he will say that China will soon have a problem, according to a Jan.7 New York Times article in their Global Business Section. We all had better hope that he is wrong, unless you are in cash, waiting for the buying opportunity of a lifetime, because if China goes down, it will be ‘look out below’ for a lot of stock markets.