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Dubai’s wealth fund hunts for opportunities after H1 profit

ICD's investment portfolio includes some of Dubai’s biggest companies, including Emirates National Oil Company (Enoc), Emirates airlines and the Commercial Bank of Dubai Reuters
ICD's investment portfolio includes some of Dubai’s biggest companies, including Emirates National Oil Company (Enoc), Emirates airlines and the Commercial Bank of Dubai
  • Tenfold net profit increase marks return to pre-pandemic earning
  • H1 profits swelled to AED14.8bn ($4bn) and revenues up 61%
  • Boosted by surge in travel and tourism and in oil and gas sales

The Investment Corporation of Dubai (ICD) said it would remain “cautious and selective” when making new investments, having reported a tenfold annual increase in net profit to $4 billion for the first six months of 2022. 

Described by ICD as “exceptional”, the results mark a return to pre-pandemic-level earnings by the Dubai sovereign wealth fund, reflecting recent high oil prices and a rebound in tourist activity, according to James Swanston, emerging markets economist specialising in the Middle East and North Africa at Capital Economics. 

Swanston said that plenty of factors will have driven its strong performance, but it was “worth considering that this is only relative to 2021 and there is scope that the 2022 annual figure will be more in line with pre-Covid net profits, given the fallback in oil prices and recent tempering of oil production in line with OPEC+.”

Oil prices hit an all-time high of $140 a barrel in February after Russia’s invasion of Ukraine, but are now hovering around $88 a barrel. 

“While these were record profits, when extrapolated for the year as whole, they would only just better ICD’s earnings in 2017 and 2019, both AED25 billion,” Swanston said. Debts due by 2025 could also weigh on future earnings, he added. 

ICD’s net profits swelled to a record AED14.8 billion ($4 billion) in H1 2022, from AED1.4 billion in the same period last year, the group said on Wednesday. Profit attributable to the equity holder stood at AED12.2 billion.

First-half revenues also soared, reaching a record AED121.1 billion ($33.9 billion), up 61 per cent when compared to the same period of 2021. Total assets grew to AED1.1 trillion and the group’s share of equity increased by 4.8 per cent to AED199.8 billion. 

ICD managing director Mohammed Ibrahim Al Shaibani said in a statement: “Despite the challenging global economic outlook, ICD maintains a strong balance sheet, is confident of the growth potential of its businesses and will remain cautious and selective in how it deploys new capital while exploring new investment opportunities.”

ICD, which was set up in 2006, has an investment portfolio including some of Dubai’s biggest companies, such as Emirates (Dubai’s flagship airline), Commercial Bank of Dubai and Emirates National Oil Company (Enoc). 

The group attributed its strong H1 financial performance to a “significant surge” in travel and tourism activities, which helped its transportation division return to profit after a decline since 2020 when the coronavirus pandemic struck. 

In particular, Emirates reported a record AED4 billion profit in the first half of its financial year, from April to September, up from a loss of AED5.8 billion. 

Revenues generated by the group’s oil and gas business also received a boost on the back of substantially higher international oil prices, with profits lifting by 190 per cent year-on-year. 

Airplane, Aircraft, Vehicle
Emirates reported a record AED4bn profit from April to September 2022

ICD’s other business segment, including property and hospitality, grew revenues by 129 percent, driven by record earnings from aluminium production and a solid performance from the real estate and hospitality sectors.

According to government data, Dubai reached 85 percent of its pre-pandemic number of international tourists in the first nine months of this year, totalling 10.12 million overnight visitors.

“Assuming that ICD’s portfolio has not vastly changed since the 2021 annual report, its holdings in Enoc will have benefited in 2022 from the rise in global energy prices and the UAE’s increasing oil production,” noted Capital Economics’ Swanston. 

“On top of that, the tourism, hospitality, and real estate sectors have seen an improved performance in 2022 compared to 2021, with rising prices and the return of tourists after Covid-related restrictions have been lifted, as well as the boost from hosting the Dubai World Expo.”

The International Monetary Fund forecasts global economic growth to slow from 6 per cent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. However GCC economies are expected to remain relatively robust, with GDP growth predicted at 6 percent for this year and 4 percent for next. This is expected to support business momentum in Dubai and the rest of the UAE.   

“Heading into 2023, ICD will clearly be in a stronger position and may look to increase investments into energy sectors in line with the UAE’s goal of ramping up oil production capacity [announced this week by Abu Dhabi National Oil Company],” Swanston said.

“That being said, ICD has considerably large debts that are coming due over the coming years. By the end of 2025 we estimate there are around $25 billion (AED92 billion) of bond and loan repayments due. 

With this in mind, he said, “it could curtail ICD’s spending if it looks to instead use its profit windfall this year to service future debts.”

ICD said its total liabilities increased marginally in H1 this year to AED887.5 billion from AED874.7 billion in the same period of 2021, while borrowings and lease liabilities slightly declined.

Wesley Schwalje, founder and COO of Tahseen Consulting, said: “Globally, corporate profits are hitting record highs. In the US, corporate profits in the non-financial sector also hit a record high of $2.08 trillion in Q3 despite 40-year-high inflation.

“Internationally, companies are passing higher costs on to consumers while expanding profit margins.

“With the UAE making a strong recovery to pre-pandemic tourism levels on the back of hosting international events, retail, real estate, and hospitality are booming. The oil and gas sector has also done well due to geopolitical factors,” he said.