DP World’s $5.15bn dividend to Dubai World is credit positive for UAE banks

Dubai World plans to use the money to repay debt it owes to UAE banks and international investors, Moody’s says

Containers owned by China Shipping Container Lines Co. Ltd. are offloaded at Jebel Ali Port, in Dubai, United Arab Emirates, on Wednesday, Dec. 26, 2007. Jebel Ali Port, owned by DP World Ltd., the fourth-biggest port operator, is the largest in the Middle East. China Shipping Container Lines Co. Ltd., the second-largest in Asia, owns and operates container vessels for the international and domestic container marine transportation services. Photographer: Charles Crowell/Bloomberg News
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The Port and Free Zone World (PFZW) and DP World’s planned $5.15 billion (Dh18.91bn) dividend to Dubai World will be credit positive for UAE banks, Moody’s Investors Service said.

Dubai World is expected to use the money to repay around $5bn of the nearly $11bn in restructured debt it owes to UAE lenders and international investors.

“We expect varying credit-positive effects among creditor banks depending on whether and how much they contribute to financing the new $9bn of PFZW debt guaranteed by DP World,” Moody’s said. “For creditor banks that do not extend financing to DP World, the debt repayment would result in a net reduction in their exposure to the Dubai World Group, which is credit positive.”

Earlier this week, PFZW, which owns 80.45 per cent of DP World, offered to buy out the 19.55 per cent of shares owned by the company's minority shareholders for around $2.7bn. The transaction would give PFZW full ownership of DP World, which will then be delisted from Nasdaq Dubai.

PFZW and DP World will raise up to $9bn of debt to buy out minority shareholders, pay a $5.15bn dividend to Dubai World, which is the sole shareholder of PFZW and refinance some upcoming debt maturities and DP World's $254.4 million of outstanding convertible bonds.

“For creditor banks that decide to extend financing to DP World in an amount similar to their expected repayment from Dubai World, the operation would effectively 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.”

“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 $9bn debt in the debt capital markets at a later stage,” Moody’s said.

Emirates NBD, which had $186bn of total assets as of December 2019, is among Dubai World's largest domestic creditors. In 2014, ENBD reported a $2.3bn exposure to Dubai World and subsequently modestly decreased this through amortisation.