CME Raises Stake in Dubai Mercantile Exchange in Recapitalization Plan
CME Group Inc. (CME), the world’s largest futures exchange owner, and Oman Investment Fund will raise their respective stakes in the Dubai Mercantile Exchange to support expansion at the Middle East oil bourse.
CME Group’s Nymex division will double its holding to 50 percent, while Oman’s sovereign wealth fund will own 29 percent of the Dubai exchange, according to a PRNewswire statement released today. The DME will receive “significant new funds,” Chief Executive Officer Thomas Leaver said in a conference call, without providing further financial details. The Dubai exchange’s only product is the Oman crude futures contract.
“The CME is putting capital into the DME to help them reach their goals,” Gary Morsches, the managing director for energy at CME Group, said on the call. The Oman crude contract is “an outstanding measure for Mideast crudes, and the liquidity provides outstanding risk-management tools.”
The DME is seeking to establish the Oman crude futures contract, which gives investors the option to take physical deliveries, as the benchmark for oil sales to Asia. Leaver, its CEO, wants more oil-producing countries, which mainly use benchmarks to price the crude they sell under long-term contracts, to adopt the Oman contract as their base.
Other stakeholders in the DME will see their holdings diluted because they didn’t invest additional funds. A unit of Dubai Holding LLC, one of the emirate’s three main holding companies, will retain 9 percent, while 12 percent will be held by investors including Vitol Group, Royal Dutch Shell Plc (RDSA), JPMorgan Chase & Co. (JPM), Morgan Stanley (MS), Goldman Sachs Group Inc. (GS) and Concord Energy Inc., according to the statement.
Under the existing arrangement, CME Group, the Oman fund and a Dubai state-owned investment company each has a 25 percent stake in the exchange, according to the company’s website and comments Leaver made in a June 2009 interview. The other investors split a 20 percent stake bought in 2008. The remaining 5 percent is allocated to floor trading members, according to the website and Leaver.
DME Chairman Ahmad Sharaf said Jan. 9 that the exchange would raise money this year by offering shares to existing investors, while maintaining the current roster of shareholders.
Oman, the largest Middle Eastern oil producer that’s not a member of OPEC, uses the monthly averages generated by the exchange to set the official selling price for its crude. Dubai began using the DME as a benchmark to price its oil in 2009. The standard for Middle Eastern crude is the Dubai price assessment published by Platts, an energy-information division of McGraw- Hill Cos.
CME Group offers clearing services for trades done on the Dubai exchange and supports swaps and options contracts that are based on the DME’s Oman oil futures contract.
The Dubai exchange, which may offer additional fuel or derivative contracts, is targeting members of the six-nation Gulf Cooperation Council to switch to the Oman contract as a benchmark, Leaver has said. The council comprises Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Oman and Bahrain.
The DME, located in the Dubai International Financial Centre, delivered more than 145 million barrels of crude oil in 2011, according to today’s statement. Trading volume rose 19 percent from the previous year, according to the statement.
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