Carrier at the crossroads of the world

Dubai: An Emirates initial public offering (IPO) is thought to be good news for the market, following the announcement last week of the DP World IPO.

Another Dubai brand that has an international image and a presence on six continents, DP World will open its subscription for the IPO on Sunday - something the regional and international financial institutions will closely observe - and its performance could trigger other big-ticket IPOs of Dubai government assets.

"We will closely observe the market response to the DP World IPO before making our own decision," said a source close to Emirates. "The value of Emirates could be anywhere around $25 billion, based on it profitability and assets."

This puts the value of the airline, which has not yet been rated, at least 25 per cent higher than that of the DP World - the world's third largest port operator.

Meanwhile, the UAE Cabinet recently approved the privatisation of the assets belonging to the Federal Electricity and Water Authority (Fewa), which supplies water and electricity to parts of the Northern Emirates.

These moves mark a fundamental evolution in the government's thinking - from holding the assets to partial divestment.

Emirates, the most profitable Arab carrier, ranks among the world's top 20 airlines and represents one of the most widely-recognised brands worldwide.

Shaikh Ahmad Bin Saeed Al Maktoum, President of Dubai Civil Aviation and Chairman Emirates Group, was quoted by The Times of London as saying: "I think for sure Emirates will also, in the future, do something like that," when asked about the DP World IPO announced 10 days ago.

An Emirates spokesperson, meanwhile, said, "We confirm that what our chairman has said to The Times is accurate, and we have nothing further to add. Eventually, as expressed by our chairman during the interview, any decision for an IPO rests with our owners, the Government of Dubai."

Even so, it has become clear that an IPO is now under consideration. The bigger question remains: does the airline need it?

"Emirates has more than Dh11 billion cash flow to finance future acquisition[s], so it does not need an IPO to support the expansion," an Emirates official said.

"We have raised Dh44.77 billion to fin-ance fleet expansion over the last ten years. Of this, over $2.28 billion equivalent has been in the form of bonds, including a sukuk for $550 million," a company spokesperson told Gulf News. "As at the March 2007 year-end, Emirates' bank borrowing stood at Dh1,071 million [of which Dh951.6 million was long-term]. The total debt to equity ratio [net of cash and including lease obligations] was 103 per cent."

An Emirates IPO would attract global investors to Dubai. "Emirates is a global brand, the most successful airline in the Arab world. It would generate a lot of interest in the market," Robert Ziegler, principal at AT Kearney (UAE) Limited, said.

"Although I was surprised at the news at first - and asked myself why? - I will buy it. It would be well-received by the financial institutions, [and] other regional airlines would see it positively."

Mohammad Yasin, managing director, Shuaa Capital, said, "It will be one of the most sought after IPOs, and will be attractive to the institutional investors. Both DP World and Emirates are great companies to subscribe to."

Silencing critics

The mood music then is harmonious. An Emirates IPO would also silence its critics who accuse it of benefiting from government support. "With respect to The Times report, I think it's fair to say that this move [if it were to happen] might be considered an attempt to finally rebut the frequent allegations of some of Emirates' main competitors that the airline's success is basically the result of unfair subsidies," said Dr Andreas Knorr, a Germany-based aviation expert.

It sounds like a win-win situation for the company, and for Dubai. Moreover, it's a story that's gathering momentum.