Friday 11 December 2009

Dubai Group Sells Stake in Egyptian Bank

The Dubai Group, one of Dubai’s state-controlled investment firms, has sold part of its stake in the Egyptian investment bank EFG-Hermes, kicking off what could be a huge sale of the emirate’s assets in an effort to prop up its shaky finances.

The Dubai Group sold 25 million shares in EFG-Hermes on Wednesday for an undisclosed price, the Egyptian stock exchange reported. Two unidentified people familiar with the deal told Bloomberg News that the Dubai Group raised about $114 million.

Dubai has said it would not be selling off assets at fire-sale prices to meet its debt obligations. The state has even distanced itself from its state-owned companies, including Dubai World, saying that their debts rest on the corporate level and won’t be backed by the government.

But exactly how well did Dubai do in its investment in EFG-Hermes? Well, it bought a 25 percent stake in the Arab world’s largest publicly traded investment bank in November of 2007 for $1.1 billion, valuing the bank at $4.4 billion at the time of the sale.

That means a 6.5 percent sale in EFG-Hermes would have been worth $286 million based on Dubai’s original purchase price — so the $114 million it reportedly received on Wednesday would represent a 60 percent discount.

Based on that sale price, Dubai seems willing to sell assets at a major discount to what it originally paid for them at the top of the bubble and forgo the waiting time to recoup its investment. While the sale could be just a one-off discount, the precedent it has set could be enough to send deal makers to Dubai to sniff out some bargains.END

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