The Dubai-based ports operator is to pay off as much as US$1.5 billion (Dh5.5bn) worth of debt - more than a quarter of its entire debt load - after the sale of a majority stake in its Australian arm.
DP World to cut $1.5bn of debt with sale
DP World, the ports operator based in Dubai, is to pay off as much as US$1.5 billion (Dh5.5bn) worth of debt - more than a quarter of its entire debt load - after the sale of a majority stake in its Australian arm.
The company said it would make profits of more than $300 million on the sale of 75 per cent of DP World Australia to Citi Infrastructure Investors and an unidentified institutional partner.
The cash injection will be used to pay down DP World's outstanding debts, which are currently $5.9bn.
Sultan Ahmed bin Sulayem, the chairman of DP World, said there were "new opportunities in higher-margin markets", such as South East Asia, Africa and South America, but stressed that the port operator was not abandoning developed markets.
"Our focus is on emerging markets, but we're not going to be going out and selling [ports in] our mature markets," he added.
He added there would be no changes to staff levels or management at the company's five existing container terminals in Brisbane, Sydney, Melbourne, Adelaide and Fremantle.
"It will be business as usual for DP World and our customers," Mr bin Sulayem said.
The company's listing on the London Stock Exchange was also on track for the second quarter of next year, he said.
He added the company was in the early stages of negotiations to bid for an expansion of facilities at San Antonio Port in Chile.
The operator of the port, Empresa Portuaria San Antonio, is seeking to expand its facilities to accommodate bigger ships and extra containers, in a project estimated to be worth $280m.
Kareem Murad, a logistics analyst at Shuaa Capital, said the move to other regions reflected the faster rate of growth in emerging markets.
"Australia is one of the slower growth regions, and there are higher growth prospects elsewhere, especially in Asia and India," he said.
The deal, which Mr Murad said was a fair valuation for DP World Australia, also demonstrated a desire to reduce the company's overall debt burden.
"In the first half of 2010, they were sitting on $8bn of total debt," said Mr Murad. Now, however, "they have $2.7bn in cash, and this company generates around $1bn in cash every year. In 2010 it was even higher."
The company's cash holdings have left it with a strong balance sheet, added Mr Murad. "I see no major concern in the debt position of this company."
DP World stock surged to a 27-month high after the deal was announced. Its shares rose 6.3 per cent to their highest since September 2008 to close at 64 fils.
Investors said the sale of DP World Australia had been expected.
"It shouldn't come as a surprise as they have been mulling an initial public offering [IPO] since January," said Shehzad Janab, the head of asset management at Daman Investment.
"We knew they had various international parcels and that left the Australian assets. After the reshuffle, it was either an IPO or a trade sell."
DP World is a subsidiary of Dubai World, the conglomerate owned by the Dubai Government. The Government is attempting to reduce the emirate's debt burden, estimated to total about $115bn once public sector entities are included.
Martin Kohlhase, a credit analyst at Moody's Investors Service, said the sale would be a boost to DP World's creditworthiness.
"Corporates owned by the Government of Dubai as well as senior government officials, have … expressed their intent to monetise part of their assets, if the price reflects the value of the asset."
However, he added that a discrepancy between bidding and selling prices had so far given rise to "only a limited number of transactions".
"This transaction is in line with the overall debt reduction strategy," he said.
Moody's rates DP World at "Ba1", with a "positive" outlook as long as it succeeds in its publicly stated desire to refinance a $3bn revolving credit facility, which comes to an end in 2012.
The agency does not rate Dubai as a sovereign entity.