We’ve a compelling rationale to launch Dubai Natural Resources World, says Sultan Ahmed Bin Sulayem
The global macroeconomics environment today points to a future in which commodities will play an increasingly large part in trade and commerce. The natural effect of this global socioeconomic change constitutes the basis of the secular bull market in natural resources that started in 2000 and may last 15 to 20 years. This provides a compelling rationale to launch Dubai Natural Resources World, a multi-faceted investment initiative tailored to provide extraordinary returns across the natural resources value chain, says the Chairman of Dubai World, Sultan Ahmed Bin Sulayem, in an exclusive interview to The World, a Dubai-based business monthly.
The World: Why invest in natural resources? They hardly constitute a new economic sector. In fact, they’re among the oldest of commercial activities humans have known …
Sultan Ahmed Bin Sulayem: The world is undergoing an unprecedented change in the global economy that is also underpinned by a similarly historic social and demographic change. After two centuries of complete dominance of Western economies, structural changes in China, India and other emerging economies are projecting them to potentially become the largest economies in the not so distant future. They are seeing an emergence of a new middle class in the developing world. This middle class, encouraged by globalization, is eager to improve its standard of living and join the already existing consumer age. In addition, other emerging economies and a resumption of growth in the developed world such as Japan are all contributing to an increase in consumption in virtually all goods and services. With 6.5 billion potential consumers – living in an era in which considerable industrial and technological advances – demanding more resources than ever, it is not surprising why global demand for commodities has increased. In this high-tech world natural resources are keenly sought after in order to maintain, support and develop this growing population. Because of this, resources of all types are rocketing in value as their availability and economics are continually being challenged. Simply put, supply has not been able to keep up with demand.
TW: Where did the idea come from? What actually sparked it? What future do you see in it?
SABS: The timing is right for Dubai World to start a dedicated world-class natural resources initiative that will provide extraordinary returns across the natural resources value chain. It is interesting to note that sovereign wealth funds such as Singapore’s Temasek have recently reported that they have been slow in recognizing the sector’s growth potential. The natural resources sector currently comprises only 5 percent of Temasek’s US$185 billion portfolio, and they announced in September 2008 that they have hired a new head for their international division to focus on the sector. The Financial Times reported on 13/09/08 that SWF’s funds have invested almost US$20bn in commodities futures, according to fresh data from US regulators Commodities Futures Trading Commission (CFTC). The CFTC has reported for the first time the presence of state-owned vehicles in the commodities markets.
TW: What economic and political fundamentals did you track before arriving at the conclusion that the natural resources sector would be worth investing in? How far did the global turbulence over energy, food and commodities markets influence your decision to launch DNRW?
SABS: The macroeconomics reflects a story in which commodities have and will play a large part now and in the future. The natural effect of this global socioeconomic change constitutes the basis of the secular bull market in natural resources that started in 2000 and may last, using previous cycles’ duration as reference, 15 to 20 years. Against this backdrop we were provided with a compelling rationale to launch DNRW.
TW: The natural resources sector is clearly a capital-intensive business to take on. What will be the capital base of the new company?
SABS: We don’t discuss our financing and or financial resources.
TW: What’s the investment philosophy of DNRW, especially vis-a-vis bringing value to your investments?
SABS: The philosophy will focuses on investing in natural resources and emerging markets where we can play to the strengths of the Dubai World group of companies. This is a long term, capital intensive business which can be expected to produce very high long term income streams where successes will materially impact the Group and enhance the long term growth of the DNRW business.
TW: How many business units do you plan to bring under the DNRW umbrella?
SABS: We have established three business verticals under Dubai Natural Resources World LLC, and they are Dubai Energy World LLC, Dubai Mining World LLC and Dubai Agriculture World LLC.
TW: What are the sectors you’ve identified for immediate investments? Mining? Oil & gas? Alternative energy? Agriculture? Water? Carbon trading? Any other?
SABS: We have received many proposals across all of these sectors and some are under detail evaluation.
TW: Which of these sectors do you believe offer the best and most immediate opportunities from your perspective? And what criteria do you use to determine the investment destination?
SABS: The company aims to build a diversified portfolio of investments in natural resources companies or assets for which a significant proportion of their operations and/or markets are located in emerging markets, particularly Africa, Russia, Middle East and CIS countries and will focus on areas where Dubai World and/or joint venture partners already have operations.
Investments will be made in all segments (including but not limited to development and production, processing and refining, and support services) of the natural resources sector, including energy (upstream, midstream and downstream), mining and agrarian investments.
TW: The resources sector is traditionally negatively correlated to conventional vehicles such as bonds, equities and currencies. This would imply a slower growth pattern for you than in other commercial sectors. How does this fit in with Dubai World’s declared mission of seeking an ROI of 15-20 percent for its businesses?
SABS: Natural resources and commodities are typically un-correlated to other financial investments and so are a good fit or financial hedge in investment portfolios. Commodities are also a good inflationary hedge which is why they have recently been heavily invested in as an alternative asset class by pension funds and other investment managers. This interest has driven the upward move in commodity prices as funds move into the sector.
TW: By nature, most natural resources are non-renewable, while the renewables like wind or solar energy are still far from being technologically mature. You’re entering a business environment fraught with big opportunity and perhaps bigger risk. What’s your strategy to manage this trade-off between risk and reward?
SABS: The strategy will comprise establishing a natural resources investment arm focused on exploiting global supply and demand imbalances in energy, mining and metals and agriculture. The strategy is focused on the ability to leverage off Dubai World companies and joint venture partners, and a key component will be to attract and retain a strong pool of commodity expertise.
TW: Investing in natural resources invariably carry strategic risks, such as political corruption, nationalist protests at domestic levels or even nationalisation threats when things go wrong. These are emotive issues beyond any foreign stakeholder’s control. Have you taken them into consideration? What would be your strategy to deal with such contingencies?
SABS: DNRW expects to be able to achieve these objectives by leveraging upon the extensive network of relationships and experiences of the Board and joint venture partners, but also through Dubai World group of companies and the relationships and experiences of the DNRW management team. The extensive network and experiences of the management team will enable DNRW to source and invest in deals not generally available to other companies, ensuring more reasonable pricing but also mitigating strategic risks.
TW: Do you have any companies on your radar for possible acquisition? Can you identify a few and the sectors they represent? And in which parts of the world are they located? Which countries?
SABS: We are actively looking and evaluating all sectors, but we are not in a position to discuss currently.
TW: Will Dubai World Africa’s assets like the tropical forests qualify to come under DNRW’s portfolio description?
SABS: DNRW is working closely with Dubai World Africa to identify agrarian investments.
TW: Who are your advisors and consultants in this venture? Are there any strategic partnerships with companies already well established in this field? Can you identify them? What will be the nature of such partnerships?
SABS: It is envisaged a large part of success will be found in developing and implementing joint ventures or strategic relationships with existing joint venture partners such as DBP (Demand Bidding Program) in energy, but also in leading local companies in different companies and sectors. It may be true to say that the economic, legal and regulatory environments in some countries have become more transparent, but experience has shown that foreign investors can gain significant protection when their interests are aligned with those of local investors and players. It is in this context that the extensive network of relationships developed by the Dubai World group of companies and the DNRW management team is considered paramount in successfully implanting the company strategy.
TW: Businesses such as mining, large-scale farming or energy generation require highly specialised professionals and managers to run them. Do you think you can find adequate number of them in today’s world? Where would you headhunt for your top management cadres?
SABS: Attracting and retaining talent to build a team strong with natural resource expertise is critical to the strategy. This will represent a very strong challenge to the initiative as the demand for experienced natural resource individuals is extremely strong, with competition from natural resource companies, private equity and commodity hedge funds, investment banks and trading companies to name but a few.
THE WORLD Magazine
www.theworldonline.ae
