Can DP World overprice its equity for a second time?

Those investors who bought DP World shares in the initial public offering at $1.30 in November 2007 are still sat on big losses. Of course, it is perfectly fair to say that DP World could not have known that the biggest collapse in global trade in history and the credit crunch were about to happen when it sold its shares then.

Now there are plans afoot to list the global ports operator in London and, according to The National newspaper today, for DP World to be a part of the FTSE 100 index of shares. Membership of the latter would require many funds to buy the stock to track this important index.

In the process of listing in London DP World has a complex series of options for selling new or existing shares. Up to $1 billion in new money could be raised say sources cited by The National.

London stock market rally

The London stock market has staged a powerful rally since the lows of last March and so selling shares now offers the opportunity to take advantage of the relatively strong valuations being achieved in the market right now.

Having sold stock at what looks an expensive price on the Nasdaq Dubai – achieving a hefty $4 billion in total consideration for Dubai World – is DP World going to sell its equity at what later appears as another stock market peak?

If so this will again be good market timing for the sellers but hardly for the buyers. Those who would like to buy DP World shares at a discount might therefore care to wait for a stock market correction, if indeed that does not happen before the Dubai World subsidiary can get itself listed in London.

Dubai World debt

Potential buyers are also bound to be leery about the ongoing $26 billion debt rescheduling at DP World parent Dubai World. DP World has been effectively ring fenced. But when the largest shareholder in any company is in financial trouble it is always bound to raise questions about the future of anything it owns.

Clearly more stock could be dumped on the market at a later date, and if nothing else the size of the parental stake leaves a potential overhang of stock. Dubai World might be perfectly sincere is saying that it had no intention of selling stock but then circumstances change.

On the other hand, any shipping industry official will tell you that DP World has unmatchable assets and has a fine future as global trade gets back on its feet. Therefore, owning this company’s stock makes good sense, but only at the right price.