February 6, 2006

Singapore v Dubai: The Battle of the (Very Hot) City-States

by Eric Ellis

THE DUEL BETWEEN SINGAPORE AND Dubai for control of Britain’s venerable Peninsular & Oriental Steam Navigation Co. is not so much a bidding war as a proxy battle joined by two tiny, rich city-states intent on invading each other’s territory with fat checkbooks.

In January, Singapore’s state-owned Temasek Holdings offered $6.2 billion for P&O in an attempt to wrest it from Dubai’s Ports Customs & Free Zone Corp., which had all but won P&O’s hand with a $5.8 billion bid last November. It’s the “oriental” part of P&O, founded in 1837 to help manage the British Empire’s logistics, that most attracts the two combatants. Among other assets, the company owns 29 container ports, half of them sprinkled across India and China. It’s the world’s third-largest terminal operator, behind Hong Kong’s Hutchison Terminals and Temasek’s Port of Singapore Authority, both of which have networks of their own around Asia. If Temasek snares P&O for PSA, Singapore will vault to No. 1 in volume and geographic reach.

“This is very much a play on world trade,” says Zafar Momin, logistics partner at Boston Consulting in Singapore. “They’re both saying they can see the world economy ticking along nicely for some time and are prepared to pay to be part of it.”

P&O is just the latest theater in the business battle between Singapore and Dubai, the richest of the seven United Arab Emirates. Last June the UAE’s telecom monopoly, Etisalat, outbid SingTel for control of Pakistan’s land-line operator PTCL. Emirates Airlines, owned by Dubai’s royal family, is a Singapore Airlines clone, taking passengers away from SIA on the profitable European and North American routes from Australia and Southeast Asia. Dubai promotes itself as the world’s duty-free shopping hub, a mantle Singapore has long claimed. Dubai is also constructing the world’s tallest building and its biggest airport, budgeting for a fourfold increase in passenger traffic by 2015, much of it at the anticipated expense of Singapore’s Changi. And both are investing to become
technology hubs. The two city-states, both known for their extreme heat, even boast indoor snow centers. And both are ruled by powerful families — the Lees and the al-Maktoums—neither of which is known for tolerating dissent. “Their model is Singapore,” former Prime Minister Goh Chok Tong said last year after a trip to Dubai. “The way we organize ourselves and our can-do attitude—whatever we do that is successful they copy and do it on a larger scale.”

But it is in ports where Dubai is most spooking Singapore, threatening to become Asia’s logistics power. It now has 11 terminals across the region—seven in China—after buying America’s CSX International for $1.15 billion a year ago, outbidding Singapore’s PSA by $115 million. The Dubai port authority is now the world’s sixth-largest port operator, and like PSA, has designs on being No. 1. “We are 100% committed to this transaction,” says Dubai ports chairman Sultan Ahmed Bin Sulayem. “Ours is the only serious offer on the table.”

Singapore Inc has a reputation for overspending and is not often outbid. “I get the sense they’re very hungry,” says Boston Consulting’s Momin. Dubai has hinted at a higher offer, and brokers in London are advising clients to sit tight as P&O’s share price trades up in expectation of an auction.

In the end the battle for P&O will come down to who has the deepest pockets—and that may depend on which way the price of oil is going. So far in 2006 the trend seems to be up.