This week, it was announced that DP World and state-owned Port and Free Zone World (PFZW) will raise up to $9 billion in debt to buy out minority shareholders of the company, which hold 19.55 percent, for $2.7 billion, and pay $5.15 billion dividend to Dubai World, the investment arm of the Dubai government.
The $5.15 billion dividend payment is required for Dubai World to discharge its outstanding obligations to bank lenders, in line with the existing Dubai World creditor agreements.
The proposed takeover deal, which still awaits approval from regulators and relevant shareholders, would give PFZW full ownership of DP World, which will then be delisted from the stock market.
“[The] planned $5.15 billion dividend to Dubai World will be credit positive for UAE banks because Dubai World will use it to repay around $5 billion of the nearly $11 billion in restructured debt that it owes to UAE banks and international investors,” Moody’s said in its latest analysis.
Local banks’ exposure
Moody’s estimated that in 2015, when Dubai World restructured its debt for a second time, UAE banks held about 40 percent of around $11 billion of its total debt. Among the banks in the UAE, it is believed that Emirates NBD is among Dubai World’s largest domestic lenders.
Emirates NBD, which has $186 billion of total assets as of December 2019, reported in 2014 that it had a $2.3 billion exposure to Dubai World. The exposure may have been subsequently “modestly” decreased through amortisation, according to Moody’s.
Banks who will decide to extend financing to DP World would also improve their credit position by moving their claims to DP World, the cash-generating operating company, from Dubai World, the non-income generating holding company, the ratings agency said.
“We expect this to be temporary and followed by a net reduction in banks’ exposure to the Dubai World Group, given that DP World has the intention to refinance a portion of the $9 billion debt in the debt capital markets at a later stage,” said Moody’s.
Back in 2009, when Dubai’s real estate market hit a slump after a six-year boom, Dubai World proposed to delay the repayment of its $29 billion debt. The sheer value of the company’s unpaid obligations had caused panic across the financial markets.
(Writing by Cleofe Maceda; editing by Seban Scaria)
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© ZAWYA 2020