Fitch Ratings-Milan/London - Fitch Ratings has assigned DP World Crescent Limited's (DPWCL) USD3bn global sukuk trust certificate issuance programme a 'BBB-' senior unsecured rating.
The programme rating is in line with DP World's (DPW) Long-Term Issuer Default Rating (IDR) and senior unsecured rating of 'BBB-'. The Outlook on the IDR is Positive.
DPWCL is also the trustee of the sukuk, incorporated in the Cayman Islands that has been incorporated solely for the purpose of issuing debt.
KEY RATING DRIVERS FOR DPWCL SUKUK
The trust certificate issuance programme's rating is driven by DPW's IDR and senior unsecured ratings of 'BBB-'. This reflects Fitch's view that a risk of default of these senior unsecured obligations is aligned with that of DPW in accordance with Fitch's rating definitions. DPWCL's rating is thus linked to DPW's Long-Term IDR. The rating may also be sensitive to changes to the roles and obligations of DPW under the sukuk's structure and documents.
Fitch has not considered any underlying assets or collateral provided, as we believe that DPWCL's ability to satisfy payments due on the certificates will ultimately depend on the DPW satisfying its unsecured payment obligations to the issuer under the transaction documents.
In addition to DPW's propensity to ensure repayment of the DPWCL sukuk, in Fitch's view DPW would also be required to ensure full and timely repayment of DPWCL's obligations, due to DPW's various roles and obligations under the sukuk structure and documentation, especially - but not limited to - the features explained below:
- On or before the periodic payment date, DPW as a service agent agrees to credit an amount equal to the proceeds of the sale of the allotted throughput services (being the twenty-foot equivalent units (TEUs) throughput from specified ports in the United Arab Emirates) into a collection account. If in respect of any distribution period under that series any allotted throughput services are sold for less than the relevant minimum sale price and there is a sale shortfall, the service agent shall ensure that an amount in cash equal to such sale shortfall is paid into the transaction account no later than the immediately following distribution determination date.
- On the scheduled dissolution or following the occurrence of any dissolution event, the trustee will have the right to require DPW to purchase the aggregate allotted throughput services held by the trustee or by the company on its behalf in respect of a series.
- The sukuk exercise price payable by DPW to the trustee will be used to fund the dissolution distribution amount payable by the trustee under the certificates. The dissolution distribution amount equals (a) the outstanding face amount of such certificate; and (b) any accrued but unpaid periodic distribution amounts for such certificates.
- The payment obligations of DPW under the transaction documents shall at all times rank at least equally with all other unsecured and unsubordinated obligations of the company present and future.
The programme documentation contains a negative pledge provision, cross-acceleration and a change of control clause, as well as financial reporting obligation covenants, which link the programme to the performance of the debt instruments issued at DPW. This links the sukuk to DPW's senior unsecured debt.
Certain aspects of the transaction will be governed by English law. Fitch does not express an opinion on whether the relevant transaction documents are enforceable under any applicable law. However, Fitch's rating on the certificates reflects the agency's belief that DPW would stand behind its obligations.
When assigning ratings to the programme and certificates to be issued under it, Fitch does not express an opinion on the programme's compliance with sharia principles. There is no assurance that notes issued in the future under the programme will be assigned a rating, or that the rating assigned to a specific issue under the programme will have the same rating as the programme rating.
KEY RATING DRIVERS FOR DPW
Improving Cash Flow
The Positive Outlook reflects DP World's sound liquidity and Fitch's expectation of deleveraging from 2016 onwards, assuming continued bolt-on rather than transformative acquisitions. Funds from operations (FFO) adjusted net leverage for 2015 was 4.1x compared with our forecast of 3.9x. Fitch expects DPW to remain cash-flow negative until 2016, reflecting high expansion capex.
UAE Operations to Outperform
Fitch expects DPW's UAE operations to outperform other operations, supported by the acquisition of EZ World (EZW), which includes the 100%-owned key asset of Jebel Ali Free Zone (JAFZ (BBB-/Positive)). The acquisition contributed to higher non-containerised revenue and helps support the record Fitch-adjusted EBITDA margin of 47.3% at end-2015. The full year impact of this acquisition will be reflected in 2016.
Growth Capex Increase
DPW has commenced the construction of Container Terminal Four, and in February 2016 concluded two major contracts for construction work, which will increase capacity at Jebel Ali by 3.1 million TEUs. The Jebel Ali port continues to operate at high levels of utilisation, with 15.6m TEUs in 2015 (2014: 15.2m TEUs). Capex for DPW in 2016 will between USD1.2bn and USD1.4bn. We expect that DPW will be able to defer some of its capex if trade volume growth softens more than expected in 2016.
Improving Leverage
Fitch expects FFO adjusted net leverage of about 4.2x for 2016, reflecting the increased capex. We expect DPW's leverage to improve from 2016 based on FFO improvement, and FFO fixed charge coverage to remain stable at about 2.8x for 2016.
Standalone Credit Profile
The ratings reflect DPW's standalone credit profile and do not include support or constraint from its ultimate parent, the Dubai government. Fitch views DPW's links with the Dubai government as moderate given the absence of any formal financial guarantees, according to the agency's Parent and Subsidiary Linkage methodology.
DPW's assets remained ring-fenced during the debt restructuring process of its direct parent company, Dubai World. In addition, despite change of control clauses in the documentation of its syndicated loan, sukuk bond and MTN programme, DPW 's debt has no cross-acceleration provisions related to Dubai World or its subsidiaries above DPW in the capital structure.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for DPW include:
- JAFZ EBITDA margins of 78%.
- UAE operations to outperform other operations, supported by new capacity at Jebel Ali and lifting of sanctions on Iran.
- New sukuk issuance to be used to partially refinance the USD1.5bn sukuk due in 2017.
- Capex USD1.3bn for 2016, thereafter reducing to USD850m per year.
RATING SENSITIVITIES
Positive: Future developments that could lead to positive rating action include:
- FFO adjusted net leverage consistently below 4.0x
- FFO fixed charge cover above 3.0x
- Positive free cash flow (FCF; before disposals)
- Strong uptake of new terminal capacity
Negative: Future developments that could lead to negative rating action include:
- FFO adjusted net leverage consistently above 4.5x
- FFO fixed charge cover below 2.5x for a sustained period
- Sustained negative FCF
- Expansion into higher-risk business areas; structural decline in international trade
LIQUIDITY
Cash and cash equivalents amount to USD1.4bn as of end-December 2015 and undrawn committed borrowing facilities of USD2.5bn more than cover short-term debt of USD100m.
LIST OF RATINGS
DPW
Long-Term Issuer Default Rating 'BBB-'; Outlook Positive
Short-Term Issuer Default Rating 'F3'
Senior unsecured 'BBB-'
DP World Sukuk Limited
Senior unsecured 'BBB-'
DP World Crescent Limited (DPWCL)
USD3bn global sukuk trust certificate issuance programme 'BBB-'
Summary of Financial Statement Adjustments
Lease-adjusted debt; Fitch capitalises 100% of the fixed and 50% of the variable, volume related concession payments using a multiple of 8x, resulting in a blended multiple of 6x of total concession payments.
Additional information is available on www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary.
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)
Rating Sukuk (pub. 18 Aug 2015)
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy
Principal Analyst
Yeshvir Singh
Associate Director
+44 20 3530 1810
Supervisory Analyst
Danilo Quattromani
Senior Director
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Josef Pospisil
Managing Director
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Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com.
© Press Release 2016
