By Simeon Kerr, Financial Times. 17 February 2020.
Dubai is to delist state-controlled DP World as it seeks to pay back debt owed by the ports operator’s parent Dubai World.
DP World and its majority owner Port and Free Zones World on Monday offered to pay a 29 per cent premium to acquire the 19.5 per cent of DP World listed on Nasdaq Dubai to take the ports operator private.
As part of the transaction, PFZW would pay $5.15bn to its parent Dubai World to help repay debt to bank lenders “so that DP World can implement its strategy without any restrictions from Dubai World’s creditors”.
The move to take DP World private comes as Dubai struggles to steer itself out of a five-year economic slowdown triggered by the 2014 collapse in oil prices and growing geopolitical turmoil.
The region’s petrodollar recycling hub has faced a decline in real estate prices amid slow tourism, trade, retail and job growth as it is set to grapple with a series of upcoming loan negotiations. Dubai and its state-related entities may seek to restructure a chunk of $23bn in loans maturing through 2021, Fitch said last year.
While the delisting deal would see the ports operator take on an additional net debt of $8.1bn, DP World said it expects to receive an investment grade rating from Fitch and Moody’s. PFZW and DP World are committed to a “progressive deleveraging strategy” and would eventually seek to refinance parts of its debt with longer term maturities.
DP World, which operates in more than 50 countries, said going private would
allow it to take a longer term view on the ports and logistics business, rather
than being beholden to public markets’ short-term view on capital allocation
and shareholder returns.
Dubai World, a conglomerate built around the ports operator that extended into real estate, hospitality and leveraged international investments, was at the centre of the emirate’s debt crisis in 2009, when Dubai had to rely on $20bn in bailout loans from Abu Dhabi and the United Arab Emirates central bank to prevent a sovereign default.
Senior Dubai official Mohammed al-Shaibani last month took over as chairman of Nakheel, the developer previously owned by Dubai World, which has been hit hard by a slide in property prices by 40 per cent since their last peak in 2014. Nakheel’s extensive leverage triggered the 2009 debt crisis when the city’s real estate bubble burst in 2008.
DP World this month reported a 1 per cent rise in container volumes last year, compared with 2.9 per cent year-on-year growth in 2018, saying it had been a “challenging year” due to trade disputes and tensions in the Middle East. Sultan bin Sulayem, chief executive, said that 2019 was “a challenging year with the trade war between China and US and regional geopolitics causing uncertainty in the market”.
Source: Financial Times