Dubal worth around $39bn as Dubai negotiates sale to Abu Dhabi
Posted on 10 March 2011 with 2 comments from readers
Dubai has confirmed that the emirate is in talks to sell a stake in Dubal, the Dubai aluminum smelter that made a profit of $580 million profit last year to Abu Dhabi sovereign wealth fund Mubadala Development.
With global rivals like Alcoa currently commanding a price-to-earnings ratio of 68 that would value Dubal at around $39 billion. Profits at Dubal have doubled over the past year making it a particularly attractive time to sell such assets.
Time to sell
Industrial metal prices have bounced back from the recession after the global financial crisis two years ago, and commodity prices are high due to demand from India and China.
Selling the family silver at this point in the cycle might well make good sense for Dubai. But then again Dubal is selling an irreplaceable asset that in the past accounted for up to 10 per cent of the emirate’s annual GDP.
From the perspective of Abu Dhabi this is an opportunity to diversify that may not come again in many years, and if the emirate does not buy then there are many foreign buyers who would snap up a stake in Dubal.
For Dubai this is a chance to convert highly-valued equity into cash at a time when it needs to pay down some of the estimated $110 billion in state debts accumulated in the boom years. Selling a 50 per cent stake in Dubal would go a long way to paying all the debts due in 2011.
Emal joint venture
Abu Dhabi and Dubai already jointly own the brand new Emirates Aluminum company at Taweelah that is to make a profit for the first time this year on an output of 742,000 tonnes compared with Dubal’s one million tonnes.
Dubai will clearly not be delighted to part with a major state asset at any price, but if the price is right then it makes good sense to eliminate debts with a Dubal sale.
This also serves as a reminder to financial critics that the value of the equity owned by Dubai Inc is considerable and that there is a ready trade sale always available down the road in mega-rich Abu Dhabi. It means recapitalizing Dubai and paying off its debts may happen much faster than anybody could imagine possible.
2 Comments posted by readers:
We used to have a big aluminum smelter near New Orleans. Kaiser shut it down in the 1970’s (?) probably because of the high labor cost and lack of nearby ore supply. Natural gas was still dirt cheap in Louisiana at that time. Then it started to go up, probably because of folks like Enrob, a.k.a. Enron, the people who created the artificial electricity shortages in California that probably killed a few people when the electricity was needlessly cut off. Now of course, natural gas is once again cheap, although no longer cheap enough to throw away by flaring.
Did anyone go to jail for that Enron conspiracy? What about the guys on tape talking about cutting granny’s electricity. Naw, they’re ‘businessmen’ not terrorists or saboteurs.
Many experts claim that peak oil will force more local manufacturing, as it becomes too expensive to ship, all but the most high value items, long distances. I’m still trying to figure out why Nucor is building a big new iron mill right upriver (the Mississippi) from New Orleans. There is no high grade iron ore around here, or coal, or cheap labor. Maybe shale gas fuel is that much of the total cost or iron production. Nucor chose Louisiana over Brazil! Strange to me, but if they want to spend all that money, and pay workers an average salary of $70,000 it is OK with me. The workers will earn their pay during the humid Louisiana summers. We will have less US sugar cane to subsidize with our tax money, because a sugar cane field will be sacrificed for the mill.
Here is an interesting fact. During the last decade, the income of the top 1% of Americans increased by 281%. Source: Rachel Maddow show on MSNBC TV. The Federal debt went up a little too. I wonder why?
I am affraid the estimated price is off by a factor 10 and should rather be in the range of $4 billion.
Consultant for the primary aluminium industry