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DP World to Buy Dubai’s Economic Zones for $2.6 Billion

14-Nov-2014


Photographer: Charles Crowell/Bloomberg News A container ship owned by China Shipping Container Lines Co. Ltd. is loaded at Jebel Ali Port, in Dubai, United Arab Emirates. DP World’s shares in Dubai have advanced about 13 percent this year

DP World Ltd. (DPW), the operator of ports from China to Peru, agreed to buy an industrial parks company for $2.6 billion in a deal that may help Dubai World pay debt five years after its near default roiled global markets.

Shares of DP World closed 2.7 percent higher in Dubai after the company said in an e-mailed statement it agreed to buy Economic Zones World FZE, which operates the Jebel Ali Free Zone in the emirate. DP World and EZW are both units of Ports & Free Zone World FZE, which is owned by Dubai World.

Dubai World, one of the Middle East business hub’s three main state-owned holding companies, sought a standstill on about $26 billion of debt in 2009. The company, which also owns private equity firm Istithmar World PJSC and shipyard Drydocks World LLC, reached a deal with about 80 creditors in 2011 to reschedule its loans. It needs to pay $4.4 billion in September next year, and more than $10 billion in September 2018.

“The flow of cash would enable Dubai World to repay its creditors,” analysts Shabbir Malik and Murad Ansari at EFG-Hermes Holding SAE said in a note. An “early repayment of the first debt tranche is now more likely,” they said.

The deal includes the assumption of net debt of $859 million, and is at about 10 times EZW’s earnings before interest, tax depreciation and amortization for 2013, DP World said. It will fund the acquisition from its existing cash holdings and committed conventional and Islamic loans as well as revolving credit facilities, according to the statement.

DP World will also seek shareholders’ approval to delist the company from the London Stock Exchange while maintaining its NASDAQ Dubai listing, it said in today’s statement. As of Sept. 30, about 99 percent of DP World’s shares were held by investors using NASDAQ Dubai, according to the statement.

DP World’s shares in Dubai have advanced 14 percent this year. The emirate’s economy may expand 5 percent in 2014, the fastest pace since 2007, according to the International Monetary Fund, helped by a boom in trade and tourism. Container throughput at DP World’s more than 65 terminals globally jumped 10 percent in the nine months through September.

Jebel Ali Free Zone, a 57 square-kilometer (22 square-mile) industrial park adjacent to DP World’s flagship Jebel Ali port in Dubai, is EZW’s primary business unit and generated 97 percent of its revenue in 2013, according to the statement.

The Jebel Ali Free Zone surrounds Dubai’s port and a possible future sale by Dubai World would be “seen as a strategic risk for DP World,” Chief Financial Officer Yuvraj Narayan said at a news conference in Dubai today. “So we pre-empted any such move and made a compelling case to Dubai World” for the buyout, he said.

JAFZ Sukuk

Jebel Ali Free Zone’s $650 million sukuk and a syndicated Islamic loan will remain in place and DP World has the option “to explore financing options,” according to the statement.

“With JAFZ under the belt, DP World has a full supply chain and they become a more effective services provider to shipping companies,” Ahmed Shehada, head of advisory and institutions at NBAD Securities LLC in Abu Dhabi, said by e-mail. ’’It’s all about getting a better footing in the home market and leveraging on the Dubai growth story.’’

Moelis & Co., Citigroup Inc. and Deutsche Bank AG are financial advisers to DP World on the acquisition.

Dubai World has previously sold some assets to other companies in the emirate to raise cash. In December, it sold its Atlantis, The Palm resort to Investment Corp. of Dubai, and in January its Palm Utilities unit to a subsidiary of Dubai Electricity & Water Authority.


Bloomberg
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