More trouble brewing for Dubai World - Asset Sale in question (FT)

Blow for Dubai World asset sale

By Martin Arnold in London and Simeon Kerr in Dubai

Published: June 18 2010 03:00 | Last updated: June 18 2010 03:00

Dubai's sale of a flagship corporate asset has been dealt a blow after prospective bidders learnt of an investigation they believe the US Department of Justice is conducting into the business.

Dubai World has been seeking to sell Inchcape Shipping Services, a port and shipping agent, as the state-owned conglomerate seeks to raise cash as part of a restructuring of its $23.5bn (£15.8bn) of debts. But several private equity groups dropped out of the bidding for the business after discovering during due diligence what they believe is an investigation by the DoJ over its contract to service the US Navy's Fifth Fleet in the Middle East.

US private equity groups General Atlantic and Carlyle and Canadian pension fund Omers all decided not to submit second-round bids, according to people familiar with the matter.

Cinven and CVC Capital Partners, the UK-based private equity groups, submitted non-binding bids late last month. But the bids were conditional on receiving more information about what they believe is a US probe and the two groups have stopped work on a deal.

The private equity groups believe the DoJ is investigating the government services division of ISS along with some of its rivals, according to two people familiar with the company.

One of the people said the private equity groups had learnt that an investigation had been going on for several months and was triggered by information from one of ISS's competitors about alleged corruption.

ISS is one of the few successful investments in Dubai World's Istithmar investment portfolio, which includes the QE2 ocean liner and performance company Cirque du Soleil. Istithmar bought ISS for $285m at the start of its buying spree between 2006 and 2008. It has put the company up for sale for $800m. ISS said: "These claims by third parties are an apparent attempt to undermine the value of a world class asset. It goes without saying that there would be no appetite to sell this business on the cheap. Istithmar has a number of years in which to realise the correct value of any assets it wishes to divest."

All other parties declined to comment.

Fears of a US probe are likely to reduce the price bidders are willing to pay for ISS. One person familiar with the bidders warned the auction, which is being run by Bank of America Merrill Lynch, could collapse.

Another person familiar with the sale said the deal could be postponed because Dubai World had concerns about whether it would obtain fair value.

ISS, based in Chafford Hundred, east of London, describes itself as the world's biggest independent marine management company. It services the US and British navies in the Gulf and manages oil tanker contracts with ExxonMobil and Shell. It has more than 200 offices in 63 countries, and made $502m of revenue and $62m of operating profit last year.

In 2005, it won a $50m five-year contract to provide husbanding services - supplying fuel, food and essentials - to the Fifth Fleet, the Bahrain-based US naval operations that span the Middle East and Indian Ocean.