DP World buys Topaz Energy in $1.08bn deal

Ports operator buys Dubai oil services company from Renaissance Services and Standard Chartered's private equity unit

DP World has been on an investment spree in the last 18 months. Bloomberg.

DP World acquired Dubai-based oil services company Topaz Energy and Marine from Oman's Renaissance Services and Standard Chartered's private equity arm for an enterprise value of $1.08 billion (Dh3.96bn).

The deal, which is subject to regulatory approvals, is expected to be completed in the second half of the year, DP World said on Monday in a statement to Nasdaq Dubai, where its shares trade.

"This transaction is in line with our strategy to grow our presence in marine logistics and become a solutions provider to end customers," said Sultan bin Sulayem, DP World's chairman. "Importantly, we expect the acquisition to accelerate returns and drive value for all stakeholders."

The deal marks the ports operator's first foray into the oil and gas sector. DP World has been on an investment spree since 2018 as its growth strategy evolves to include the wider logistics supply chain. It snapped up UK-based transport and logistics company P&O Ferries, Indian rail logistics company Kribhco Infrastructure and Chile ports operator Puertos y Logistica.

The Dubai-based company expects the acquisition to be earnings-accretive from the first full year of consolidation and to meet DP World's return on investment targets, it said.

Topaz Energy, a subsidiary of Muscat-listed Renaissance Services, operates a fleet of 117 vessels with a focus on the Caspian Sea, the Middle East and West Africa. Standard Chartered Private Equity held a minority share in the company, according to its website.

Topaz Energy reported full-year earnings before interest, taxation, depreciation and amoritization (ebitda) reached $190 million in 2018. Its consolidated revenues were $349m.

The Dubai-based company works with oil majors BP, Chevron, ExxonMobil and Saudi Aramco. It has a contract backlog of $1.6bn as of March 31, according to DP World.

It reported a 10.2 per cent rise in annual profit of $1.3bn in 2018, compared to $1.18bn in the previous year, driven by acquisitions and growing global trade despite trade tensions, it said.

The state-owned company projected capital expenditure in 2019 to reach $1.4bn, with investment planned mainly into the UAE and in its port operations in Ecuador, Somaliland, Senegal and Egypt.

DP World's acquisition of Topaz Energy is a "good opportunity" from a valuation perspective as the deal is 4.2 times the annualised ebitda of Topaz, Ahmed Maher, analyst with Egyptian investment bank EFG-Hermes, told The National. 

"There is value to be unlocked from the cost of capital ... it can become earnings-accretive in the first year of consolidation in 2020," he said.

The acquisition will also allow DP World to use Topaz Energy's vessels in conjuction with the operations of its Dry Docks World, the marine and offshore services company, Mr Maher said.

Although the acquisition is in the oil and gas services sector rather than DP World's traditional ports and logistics operations, Mr Maher said there were several factors that made the deal attractive, despite it being “not the most fitting asset to add”.

"They probably looked at it from opportunistic standpoint," he said. "It's a cheap asset in relative terms, the management is good, the business doing OK with new contracts adding to ebitda so, from a value perspective, it makes sense."

DP World's shares closed up 1.7 per cent in Dubai on Monday.