Dubai to Delist Global Port Operator DP World
Deal comes as the emirate faces another looming debt crisis
DUBAI—Dubai plans to delist its global port operator and return it to full state ownership in a deal that would help the emirate repay billions of dollars in debt.
The emirate—which was bailed out by neighboring Abu Dhabi following a financial crisis in 2009—is again facing economic turmoil. Real-estate prices have fallen sharply since 2015, driven by oversupply and weakened consumer sentiment on lower oil prices and geopolitical tensions.
It faces another looming debt crisis. In September, Fitch Ratings said the emirate and its state-related entities could be forced to restructure a significant portion of $23 billion in loans maturing through 2021.
The deal involves DP World, one of the largest operators of ports and terminals around the globe.
State-owned Port and Free Zone World is set to buy the 19.55% it doesn’t already own in DP World by acquiring shares listed on the Nasdaq Dubai exchange for $2.7 billion, both companies said in a statement. The deal values DP World at $13.9 billion.
PFZW is owned by Dubai World, the investment vehicle of the emirate’s government. As part of the deal, PFZW will also pay $5.15 billion to Dubai World to help repay its owner’s debts, the statement said.
The payment is required, the parties said, to ensure the ports operator isn’t subject to restrictions imposed on Dubai World by its creditors, though they didn’t detail those restrictions.
PFZW will finance the transaction via new debt facilities arranged by Citibank and Deutsche Bank AG , according to the statement. As a result, DP World will be a guarantor of an expected further $8.1 billion of debt, PFZW and DP World said in the statement.
DP World, one of Dubai’s most successful companies, has itself suffered from recent global trade tensions and now faces the threat of further disruption from the outbreak of the coronavirus in China.
Sultan Ahmed bin Sulayem, chairman and chief executive of DP World, in a statement said that private ownership would free the firm from the public market’s demands for short-term returns, which he said are incompatible with the ports industry.
But Moody’s Investors Service said it would review DP World’s credit rating for a possible downgrade, saying the additional debt required for the transaction and the payment to Dubai World would be a “material deviation from the group’s self-imposed financial policy.”
Dubai World was at the heart of the Dubai government’s crisis-era woes in 2009 when it called a standstill on debts and began negotiations with banks to restructure about $25 billion of loans.
The conglomerate had borrowed heavily to fund eye-catching real-estate projects and investments, including a palm-tree-shaped island off the coast of the emirate. It was caught by surprise when banks suddenly weren’t willing to refinance loans following the global financial crisis, which left Dubai’s real-estate market in a downturn.
Abu Dhabi, the capital of the United Arab Emirates, which includes Dubai, subsequently provided $10 billion to its neighbor to help meet some of its debt obligations.
State-owned developers have again been on a building spree, driving down property prices, ahead of hosting a world exposition later this year. Dubai officials hope the event, called Expo 2020 and focused on science, innovation and entertainment, will attract 25 million visitors over a six-month period and boost state revenue.
Dubai’s economy, which is largely based on trade, tourism and retail, could suffer in the short term from the global fallout of the coronavirus, according to S&P Global. The ratings firm warned Monday that Gulf economies were susceptible to falling oil prices caused by lower demand from China as a result of the virus.
The U.A.E. has the highest contribution from Chinese nationals to airline traffic, tourism, retail, of all of the Gulf states, S&P said. However, the impact of the virus on Gulf economies will be limited should it be contained by March, the firm added.
DP World earlier this month reported a 1% like-for-like increase in 2019 container volumes across its network compared with a year earlier. The company said it was operating in a challenging market, caused by the trade war between the U.S. and China and geopolitical tensions in the Middle East.
DP World shares were up 10% at $14.30 on Monday.