DP World (DPW), the global ports operator based in the UAE, has spent US$2.6 billion to buy the Jebel Ali Free Zone, in a move that simultaneously lightens the debt burden of Dubai World.
Apart from giving indebted Dubai World an instant cash injection, the deal also reduces the parent company’s debts by $859 million, which will be taken on by DPW. The acquisition puts under the same control the Jebel Ali port – the biggest in the Middle East – and the neighbouring industrial and logistics complex, the first free zone in the region, which dates back nearly 30 years.
“The transaction is compelling from both a strategic and financial perspective,” said Sultan bin Sulayem, the chairman of DPW.
“It will allow us to enhance our position as the leading logistics hub in the region, accelerate growth and deliver shareholder value.” He also announced that DPW was seeking to end its listing on the London Stock Exchange, where trading volumes have proved to be disappointing.
The shares would then be listed solely on the Nasdaq Dubai market. Both proposals – the acquisition and the London delisting – are subject to shareholder approval but, with 80 per cent of DPW shares held by Dubai World, this looks to be a formality.
The Jebel Ali deal comes in the form of an offer to buy Economic Zones World (EZW) from Port and Free Zone World, which is 100 per cent owned by the Dubai Government via Dubai World. About 97 per cent of EZW’s business comes from Jebel Ali.
EZW had gross assets of $3.7bn at the end of June and generated $221m of profit on $430m of turnover.
Mohammed Sharaf, the DPW chief executive, said there was a “compelling strategic case” for the deal, which would create the “leading integrated port and free zone in the GCC”. The new grouping would account for 20 per cent of Dubai’s GDP and offer supply chain efficiencies close to the Expo 2020 site.
The acquisition will be paid for from DPW’s existing financial resources, said Yuvraj Narayan, the chief financial officer.
He added that DPW’s financial gearing would rise to 3.3 times from 1.7 – well within what the company regards as acceptable – and that there would be 15 per cent earnings accretion from the acquisition in the first full year. “It will not affect dividends and there will be no effect on current capital expenditure plans,” he said.
On the timing of the deal, Mr Narayan said DPW had approached Dubai World six to eight months ago when it became known the conglomerate was looking to sell assets, possibly to a third party. “We pre-empted any such move and made an offer,” he added.
Mr Bin Sulayem said that the LSE listing had not resulted in the increased trading volumes foreseen in 2011. Only about 2 to 3 per cent of shares were ever traded in London, he said, and the current figure was below 1 per cent.
DPW shares closed 2.65 per cent up at $20.15 on Nasdaq Dubai. The US investment boutique Moelis & Company advised on the deal, as did Citibank and Deutsche Bank.
fkane@thenational.ae
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