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Dubai exchange sells 20% stake to investors, including Shell

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Dubai exchange sells 20% stake to investors

By Simeon Kerr in London

Published: August 12 2008 03:00 | Last updated: August 12 2008 03:00

The Dubai Mercantile Exchange yesterday moved to spur interest in its crude oil futures contracts by selling an equity stake of up to 20 per cent to a consortium of financial investors and energy traders, including Goldman Sachs, Morgan Stanley and a unit of Shell.

The development came as the DME said it had no plans to launch a West Texas Intermediate crude oil futures contract, traded on the New York Mercantile Exchange and on ICE Futures Europe in London.

One person familiar with the transaction said it valued the exchange at $300m.

DME is a joint venture between Dubai and Nymex and has struggled to garner liquidity in its Oman futures contract, the region’s first sour-crude futures contract based on physical delivery.

It is trying to become the benchmark for rising volumes of Asian-bound crude from the Middle East, as well as cash-settled Brent and Oman contracts.

The exchange hopes that the introduction of new investors will provide another incentive to raise disappointing liquidity levels on the exchange, based in the Dubai International Financial Centre, while also helping to develop new contracts. Other members of the consortium are energy traders Vitol, Concord Energy and Casa Energy Trading.

Tom Leaver, DME’s chief operating officer, said: “These equity partners are there to help us leverage their contacts and insights as to how we get to the desired goals and see this is as a commercial success.”

The DME withheld details of the “indirect equity” transaction.

The 20 per cent comes from a dilution of the stakes of the DME’s three main shareholders: Nymex and a company owned by Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum, which have 32.5 per cent each; and the Oman government with 30 per cent.

These three will all hold 25 per cent of the exchange’s equity. Floor members will continue to hold the remaining 5 per cent.

“Vitol has always held the view that the region needs a new price discovery mechanism for Middle East crude oil destined for the eastern markets,” said Tony Harpur, director of Vitol Dubai. “We remain confident that the DME contracts will become a very useful and powerful hedging tool for traders and refiners.”

The entry of Goldman Sachs and Morgan Stanley, which have ramped up their Gulf operations over the past few years from their regional DIFC headquarters, highlights the growing interest of western financial operators in the Gulf’s emerging exchanges.

Nasdaq has taken a stake in Dubai International Financial Exchange, which will soon launch the region’s first derivatives platform.

Abu Dhabi Securities Exchange plans to launch a regional derivatives platform.

Additional reporting by Jeremy Grant in London

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