Middle East shipbuilders navigate new markets

Published: 2 June 2008

The credit crunch in the United States may have hit Asian exports, but it is unlikely to have a significant impact on the shipping industry.

The rapid industrialisation of emerging markets, in particular China and India, is fuelling unprecedented demand for commodities, which in turn is pushing demand for increased capacity in the shipping industry.

Global demand for container shipping is growing at an annual rate of over nine per cent, while container volumes from Asia to Europe are increasing by 20 per cent. Meanwhile, capacity growth is closer to 3.9 per cent, putting enormous demand on docks and support facilities.

Support services for global growth

In a global economy, ocean transport plays a key role in the delivery of raw materials and capital goods to emerging markets, and the delivery of manufactured products to consumers worldwide.

In the Middle East, Dubai's emergence as a hub for regional and international shipping has been driven by the construction of infrastructure (Jebel Ali Port is the largest man-made harbour in the world), and also through acquisition, with Dubai Ports World's 2006 acquisition of P&O perhaps the most high-profile.

Reflecting the increased demand for ship-building and support services beyond its home port, Dubai Drydocks World (DD World) enlisted HSBC to support its expansion into Asia.

A major player in the Middle East maritime sector and part of the Dubai World investment group, DD World is now helping to meet the increasing need for ships and maritime services across Asia. Through the companies under its wing, DD World engages in shipbuilding, repair and conversion - with some 11,000 workers employed at its Dubai Drydocks and Jadaf Dubai Shipyard facilities.

DD World identified the increasing need for maritime services across Asia as a strategic imperative. Consequently HSBC agreed to act as sole financial adviser and sole provider of bridge finance in the maritime giant's SGD650 million (USD429 million) acquisition of Singapore-based Pan United Marine in July 2007.

Historical relationships

Dubai Drydocks, the flagship of Dubai World's maritime business, has established itself as a leading shipbuilding and conversion repair facility. It was named Shipyard of the Year by Lloyds List Middle East and Indian Subcontinent Awards in 2007.

The company operates the world's largest dry dock, with advanced repair and ship-lifting facilities. Its accomplishments include the construction of the world's largest semi-submersible drilling rig and construction of the 160-metre Motor Yacht Dubai, the largest private motor yacht ever built.

Avinash Gupta, director of Global Banking Advisory, HSBC Financial Services (ME) said Dubai Drydocks, which celebrates its twenty-fifth anniversary this year, has been banking with HSBC since day one. "So we have a deep understanding of the company as well as excellent relations with both management and the shareholders."

HSBC, meanwhile, operates the largest investment and wholesale banking operation of any international bank in the UAE. HSBC's Global Banking and Markets business is a leader in assisting the growing number of cross-border M&A transactions that originate in the Middle East. "HSBC has been in Dubai for over 60 years. We were the first bank to be set up in Dubai, so our relationships there are very strong," said Mr Gupta.

Expanding horizons

As businesses across the Middle East increasingly look toward Asia for their growth, HSBC is perfectly placed to assist in what we refer to as 'East-East' transactions.

In July 2007, HSBC helped Drydocks World to make its first major overseas investment an East-East transaction. The company's acquisition of Pan United Marine, now renamed Drydocks World-Singapore, boosted its repair and conversion capacity as the acquisition included facilities in Singapore and Indonesia.

With dual facilities on one of the world's busiest shipping lanes, Drydocks World-Singapore is expected to attract new customers from Asia, while expanding support for clients in both regions.

Navigating new markets

"As the transaction was Drydocks World's first in Singapore, we helped them navigate the intricacies of entering this new market," said Khong Shoong Chia, HSBC's Director of Global Investment Banking in Singapore who headed the deal team. The success of the partnership laid the foundation for Drydocks World's purchase, just months later, of Labroy Marine Ltd, also in Singapore.

One of the key strengths of HSBC in executing cross-border, emerging markets transactions is its long-established presence in the Middle East. The bank operated in the region even before the separate emirates formed their union in 1971. "Over the years, we have built up a deep relationship with the Dubai Group and this has helped HSBC understand our clients' requirements. With this understanding, we were able to quickly find solutions and mitigants to key commercial issues that arose during the transaction," said Mr Chia.

The first round of acquisitions brings Drydocks World onto the international stage as it now operates one of the largest and most strategically-located networks of shipyard facilities, stretching from the Middle East to South-East Asia.