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Dubai moves to reduce back office overhead

Dubai International Capital and Dubai Group have been placed into the same holding company, while the debt-laden emirate has also combined back office functions for its three real estate entities.

Dubai International Capital and Dubai Group are being “aligned” under holding company Dubai Holding Investment Group by their parent company, Dubai Holding. Dubai Holding is one of Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum’s business interests.

DIC focuses on investment in public and private equity, while Dubai Group focuses on banking, investments and insurance.

As part of the restructuring, Sameer Al Ansari, executive chairman of DIC, and Soud Ba’alawy, executive chairman of Dubai Group, will assume the roles of co-chairmen of Dubai Holding Investment Group.

The current CEO of Dubai Group, Tom Volpe, will also take over as the chief executive officer of Dubai Holding Investment Group and acting chief executive officer of DIC.

“While the ownership and core activities of Dubai International Capital and Dubai Group will not change, both companies are to forge a closer working relationship to realise efficiencies through the consolidation of their back office operations,” Dubai Holding said in a statement. A DIC spokesman said the shuffle will have no further repercussions for the private equity group and stressed that the restructuring should be considered an “alignment”, not a merger. The two firms are coming together as “equals” and have vey little overlap, he said.

Dubai Holding is also bringing together the back office operations of its three real estate entities, Dubai Properties Group, Sama Dubai and Mizin.

The news comes in the context of a rapidly worsening economic situation in Dubai. Alarm calls are being raised over the cost of insuring the emirate’s reported $80 billion of debt, which is now almost as expensive to insure as that of Iceland, The Financial Times reported this week. Spreads on Dubai Holdings’ credit default swaps have widened even further than those of the sovereign.

With the spectre of default looming large for the emirate, moves to consolidate have fuelled skepticism over the sustainability of the Dubai government’s various and often overlapping investment interests, including its private equity entities.

“The existence of multiple private equity operations under the Dubai Holding umbrella never made any sense to me from a cost perspective, but even more from a talent perspective,” said one Dubai-based observer. “It's hard enough to find one first-rate private equity team out here, and delusional to think that you can line up two or three or four – which is what was happening as these groups proliferated.”

Earlier this month, DIC’s private equity business said it was eliminating its two deal makers, CEO Sylvain Denis and managing director Alan Hyslop, who had been at the helm since 2004 and 2005, respectively. DIC said the management reshuffle reflected a complete change of focus within the private equity division, with the emphasis for the next couple of years being placed on portfolio management rather than doing fresh deals.