Aluminum merger hints at closer Dubai-Abu Dhabi ties

The Dubai Aluminium logo is seen in the Jebel Ali area of Dubai December 2, 2009. (REUTERS/Steve Crisp)

ABU DHABI: Dubai and Abu Dhabi plan to merge their state aluminum producers in a $15 billion deal that suggests the two emirates are willing to consolidate business interests to better compete in the global economy. Combining Dubai Aluminum (Dubal) and Emirates Aluminum (Emal) to create the world’s fifth-largest aluminum producer goes against the grain for the two wealthy Gulf emirates, which for decades have built competing interests in sectors ranging from stock markets to ports and airlines.

But the global financial crisis dealt a blow to Dubai’s breakneck economic expansion and the free-wheeling city state found its fortunes more closely entwined with those of its oil-rich neighbor in 2009 when Abu Dhabi stepped in with a $10 billion bailout that allowed Dubai to avoid a debt crisis.

Emirates Global Aluminum will be the first product of a merger between companies controlled by the two emirates and will be better able to compete with state-owned Aluminum Bahrain, owner of the world’s fourth-largest aluminum smelter.

“This deal could be giving hints of more consolidation at the government level and creating strong UAE players on the global stage,” said Mohammad Ali Yasin, managing director of National Bank of Abu Dhabi’s brokerage division.

“It also in a way shapes the policy ... for the next direction of economic growth of the UAE,” he said.

Governments across the Gulf Arab region are trying to reduce their dependence on oil by diversifying into sectors such as aluminum and petrochemicals.

Dubai’s shift has been the most radical, its dash into new industries born out of necessity as its oil and gas reserves decline.

Abu Dhabi, with far greater reserves of hydrocarbons, has taken a more gradual approach.

Abu Dhabi’s abundant energy reserves will help the combined company keep a lid on the high energy costs involved in aluminum smelting.

The deal has been in the works for many years.

In 2011, Dubal Chairman Sheikh Hamdan bin Rashid Al-Maktoum, a member of Dubai’s ruling family, was quoted by a local newspaper as saying Mubadala had offered to buy a stake in Dubal, without providing more details.

Dubal’s 2012 profits nearly halved to 1.58 billion dirhams in 2012 from 3.52 billion dirhams in 2011 because of the high price of raw materials. Emal does not disclose its profits.

Emirates Global Aluminum, which the companies said would have an enterprise value of $15 billion, will be held jointly by the Investment Corporation of Dubai and Abu Dhabi state sovereign fund Mubadala. ICD owned 100 percent of Dubal while Emal is a 50-50 joint venture between Mubadala and Dubal.

“There are going to be lot of surprises in the next two years and this is the first one,” said a senior Abu Dhabi government official, hinting at further consolidation of state companies.

The two emirates have also been in talks to merge their two main stock exchanges and had hired Goldman Sachs Inc. to advise on the proposed transaction in 2010.

The new entity will have aluminum production capacity of 2.4 million tons per year after the completion of a second phase of Emal’s operations in mid-2014, ICD and Mubadala said in a statement announcing the tie-up.

Once the $4 billion phase two is complete, its capacity is expected to rise to 1.3 million tons a year from 800,000 tons now.

Dubal operates the largest single-site smelting facility in the world, built on a 480-hectare site in the Jebel Ali free-trade zone, with capacity to produce more than 1 million metric tons of high-quality finished aluminum products per year.

A version of this article appeared in the print edition of The Daily Star on June 04, 2013, on page 5.




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