|18 February, 2020

Moody's places DP World's Baa1 rating on review for downgrade following delisting deal

DP World said earlier this week it would delist from Nasdaq Dubai and return to full state ownership

Image used for illustrative purpose. Jebel Ali port is located thirty-five kilometres southwest of Dubai, in the Arabian Gulf, it is the biggest man-made harbor in the world and the biggest Middle East port.

Image used for illustrative purpose. Jebel Ali port is located thirty-five kilometres southwest of Dubai, in the Arabian Gulf, it is the biggest man-made harbor in the world and the biggest Middle East port.

Getty Images/Figurative Speech

Following DP World’s majority owner Port and Free Zone World’s (PFZW) offer to acquire 19.55 percent of the port operator’s shares traded on the bourse, Moody’s has placed the port operator’s Baa1 rating on review for downgrade.

Moody’s Investors Service has placed on review for downgrade the Baa1 long term issuer and senior unsecured ratings of DP World PLC and the (P)Baa1 senior unsecured rating assigned to DP World Crescent Limited MTN program.

PFZW owns 80.45 percent share capital of Dubai’s DP World.

Each DP World share will be acquired at $16.75, representing a 29 percent premium on the market closing price of $13 on Sunday.

On Monday, DP World, which operates in more than 50 countries, said it would delist from Nasdaq Dubai after the company concluded the disadvantages of staying listed on the stock exchange outweigh the benefits.

"Returning to private ownership will free DP World from the demands of the public market for short term returns which are incompatible with this industry, and enable the company to focus on implementing our mid-to-long-term strategy to build the world's leading logistics provider, backed by our globe-spanning network of ports, economic zones, industrial parks, feeders, and inland transportation," said, Sultan Ahmed bin Sulayem, Group Chairman and Chief Executive Officer of DP World.

PFZW and DP World will raise debt up to $9.0 billion to fund the minority buyout, pay a dividend of $5.15 billion to its parent Dubai World, the sole shareholder of PFZW, and refinance some upcoming debt maturities as well as DP World's outstanding convertible bonds.

"The proposed minority buyout and dividend payment to Dubai World will increase DP World's leverage well beyond Moody's guidance for a Baa1 rating and will lead to a material deviation from the Groups self-imposed financial policy. The transaction will weaken the overall credit profile of DP World", Dion Bate, a Moody's Vice President - Senior Analyst and local market analyst for DP World said.

According to Moody’s, the rating action reflects the anticipated deterioration of DP World's credit metrics and sizeable dividend payment to Dubai World, should the transaction materialize.

DP World's financial policy will remain unchanged and both PFZ and DP World are committed to a progressive deleveraging strategy such that net leverage trends towards its current target of 4.0x net debt to EBITDA over the next 2 to 3 years, the ratings agency noted. 

“This will be achieved through a combination of free cash flow generation, disciplined capex and planned asset monetizations,” it said.

Moody's expects the rating downgrade could be limited to two notches based on the terms of the current offer, but this will depend on the final take-up of the minority buyout and plans that the company intends to implement in order to restore stronger credit metrics, the ratings agency adds.

(Reporting by Gerard Aoun; editing by Seban Scaria)

(Gerard.Aoun@refinitiv.om)

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