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5 billion US dollars to sell the home port, what is DP World doing?


On June 6, DP World and Canadian investment fund CDPQ (Caisse de dépôt et placement du Québec) announced that CDPQ will invest US$5 billion to acquire Jebel Ali Port and Jebel Ali Free Trade Zone in Dubai. and a 22% stake in the National Industrial Park. Jebel Ali Port is the home port of DP World, with a container throughput of 13.7 million TEU in 2021, ranking 12th in the world. Jebel Ali Free Trade Zone and Industrial Park are the core assets of DP World.


                                         DP WORLD


Just like the Port of Singapore is to PSA International, the Shenzhen-West Home Port is to China Merchants Port, and the Port of Manila is to ICTSI, global port operators tend to firmly control the home port in their own hands, so that they can be free from interference from outside investors. Piloting various new technologies and measures, BoxBay, a high-profile three-dimensional multi-storey automated storage yard, was piloted at Jebel Ali Port 4 Pier. Therefore, DP World sells the equity of the home port and the core assets of the rear, and will subsequently sell more equity to other long-term investors at a price of up to 3 billion US dollars. This is the first time that DP World has introduced foreign direct investment, which has also aroused external concerns. Curious about the port giant's strategic planning.




The core assets of this transaction are extremely important to the future development of DP World. In 2021, DP World will achieve a container throughput of 45.42 million TEU, with Jebel Ali Port accounting for 30%. The Jebel Ali Free Trade Zone, the National Industrial Park and the Jebel Ali Port and the nearby Al Maktoum International Airport have formed a linkage, jointly supporting the economic lifeline of Dubai's logistics trade supply chain management, processing, manufacturing and re-export. Also astronomical, these assets are worth a combined $23 billion based on a $5 billion investment, with an enterprise value multiple (EV/EBITDA) of 18 times, at least one-third higher than the industry average.


According to the official statement, CDPQ will invest $2.5 billion in assets including Jebel Ali Port through a joint venture, and will take a 22% stake (the two parties signed a 35-year sub-concession agreement), and the remaining $2.5 billion will be in debt. form of investment. The $5 billion investment in the first phase is expected to be completed in the second or third quarter of 2022, and the $3 billion investment in the second phase is expected to be completed in the fourth quarter of 2022. In just 7 months, DP World seems to have taken too much haste to absorb US$8 billion through the transaction of home port and core asset equity.


Just in March this year, P&O Ferries, a subsidiary of DP World, laid off 800 crew members and hired outsourced employees with lower labor costs, which achieved the effect of cutting costs and reducing debt burdens, which was well received by DP World. However, the layoffs have angered the British government. DP World has invested more than 2 billion pounds in the United Kingdom in the past, operating many terminals such as London Gateway Port and Southampton Port, and invested 300 million pounds to focus on building the Thames River Free Trade Zone, and cooperated with CDC Group ( Affiliated to the British government's development investment department) to set up a joint venture to jointly invest in African ports (including DP World invested 1 billion US dollars and CDC invested 720 million US dollars). It is no exaggeration to say that the event of layoffs has cast a shadow over the future cooperation between the two parties. By exchanging the future for cash, DP World has only one goal, which is to reduce debt and reduce leverage (Debt to EBITDA Ratio).


As a ratio of net debt to EBITDA, leverage is an important criterion used by credit rating agencies to rate bonds issued by major corporations and corporations. A low leverage ratio indicates that a company has strong solvency, and vice versa, it means that a company is riddled with debt and is not worth investing in. As an industry with heavy asset investment and long investment recovery period, port operators often seek financial support for infrastructure by issuing bonds. If their leverage ratio is high and their credit rating is low, they need to set up higher bond yields to compensate for defaults. risk, and port companies with lower credit ratings are even unable to issue bonds.


DP World is backed by the emirate of Dubai, and it is a good moneymaker. In 2021, EBITDA will be as high as 3.828 billion US dollars, which is the highest among major port operators. The cash balance (cash balance) is also 3.009 billion US dollars. In people's impressions, there is no shortage of money. . DP World was dragged down by its parent company, Dubai World. In 2008, the Dubai real estate bubble burst and Dubai World was in deep debt crisis. Moody's said that one of its subordinate departments wanted to stop paying debts. DP World is one of the six Dubai state-owned companies linked to Dubai World that have their credit ratings downgraded to junk status. DP World has since dealt with a range of assets, exiting markets without significant business. When DP World delisted in 2020, it took on another $8.1 billion in debt for Dubai World. As a result, DP World has a staggering $16.071 billion in net debt by the end of 2021.


In 2021, Moody's will adjust the rating of DP World to Baa3, the lowest level of investment grade. For reference, other international port operators such as PSA International are rated Aa1, China Merchants Port is Baa1, and ICTSI is Baa2. At that time, the leverage ratio of DP World (including its parent institution PFZW) was 7.8 times, which was much higher than the 2.5 times of general investment-grade companies. DP World's goal was to reduce the leverage ratio to 4 times in 2022. is an important measure to achieve this goal.


We believe that in addition to completing the debt reduction, another highlight of this transaction is the in-depth cooperation between CDPQ and DP World. Port operators in Asia, Africa and Latin America often encounter various difficulties when entering mature markets, and consortia from developed countries also suffer from no suitable way to enter emerging markets. DP World has suffered setbacks in North America. When it acquired P&O in 2006, it was forced to sell its terminal assets in the United States due to the obstruction of the US government. CDPQ manages several pension funds and insurance funds in Canada. Since 2016, CDPQ has cooperated with DP World and established an investment platform worth 3.7 billion US dollars. There is a terminal, and the two sides will add another $4.5 billion to the platform in 2020. In 2021, when DP World signed a contract with Indonesia’s sovereign fund to invest in ports, it also announced that it would leverage this investment platform. This investment model not only paves the way for Asian, African and Latin American port operators to expand into mature markets, but also builds a bridge for developed countries to enter emerging markets.



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