Debts weigh on Jebel Ali free-zone operator as profit slips

Earnings sank by a fifth at Jebel Ali Free Zone Authority during the first half of the year as the higher cost of servicing its debts weighed on income after it was thrown a lifeline by banks this year.

Jebel Ali Free Zone Authority added 235 new customers in the first half of the year. Pawan Singh / The National

Earnings sank by a fifth at Jebel Ali Free Zone Authority (Jafza) during the first half of the year as the higher cost of servicing its debts weighed on income after it was thrown a lifeline by banks this year.

The free-zone operator, a unit of Dubai World, dodged a showdown with creditors by successfully refinancing a Dh7.5 billion (US$2.04bn) sukuk due for repayment in November.

But following the debt deal, net profits for the first half of the year fell to Dh212.2 million, a decline of 19.8 per cent compared with the same period a year earlier.

Net financing costs rose by 40.5 per cent to Dh243.8m during the same period. The increase was enough to offset a 7.5 per cent increase in revenues to Dh712m.

The number of customers at Jafza "continues to increase and more than 235 new customers were added during the period", the company said.

That reflects an additional 48 new companies compared with the end of June last year.

"High occupancy levels in the leasing of various facilities have been maintained throughout the period," Jafza said.

In June, it was able to successfully refinance the Dh7.5bn sukuk through a combination of sukuk sales, bank lending and payment from its cash reserves.

Alongside repayment deadlines from Dubai Holding Commercial Operations Group and DIFC Investments, the holding company of Dubai's financial free zone, Jafza was viewed as facing a challenging battle to secure fresh funding from creditors.

Despite the higher cost of financing itself, Jafza is likely to benefit from the increased volume of trade passing through the port it borders as a major terminal upgrade begins.

On Sunday, DP World announced it had signed a construction contract to develop a huge container terminal expansion at Jebel Ali Port that will expand capacity by 4 million TEUs, or twenty-foot equivalent units.

"The planned capacity expansion at our flagship Jebel Ali Port is guided by demands from our customers and the return of confidence in regional markets," said Mohammed Al Muallem, a senior vice president and managing director at DP World.

"Our investment today will ensure Jebel Ali continues be an important catalyst for economic development."

The development will expand the port's capacity to 19 million TEUs by 2014.