Global Arab Network | Stable Outlook - Dubai-Based DP World Ratings Reflect its Global Position

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Stable Outlook - Dubai-Based DP World Ratings Reflect its Global Position

Global Arab Network - - Mohammed Almasri

Wednesday, 23 March 2011 15:06

Fitch Ratings has assigned DP World Ltd. a Long-Term Issuer Default Rating (IDR) of 'BBB-', a senior unsecured rating of 'BBB-', and a Short-term IDR of 'F3'. The Outlook on the Long-Term IDR is Stable. Fitch has also assigned DP World's USD5bn GMTN programme a senior unsecured rating of 'BBB-', Global Arab Network reports according to a press statement.

DP World's ratings primarily reflect its strong position as one of the largest global container terminal port operators, with a geographically diversified portfolio of assets in high growth markets. Additional factors supporting the company's ratings include its strong liquidity position, a record of sustained operating cash flow generation and an experienced management team.

These strengths mitigate the company's high leverage, industry cyclicality with a high correlation to macroeconomic developments, and concentration of earnings in Dubai's Jebel Ali port, which accounted for almost 40% of the group's total throughput in 2010. Fitch recognizes though that Dubai's port represents a sizeable and reliable business base, given its gateway position in the Middle East and the fact that it currently generates high margins.

"Following an overall 10% drop in global container trading volumes in 2009, container trade has recovered notably since then and the sector outlook fundamentals are positive," says Apostolos Bantis, an Associate Director in Fitch's Corporates team in London. "DP World's 2010 results demonstrate a significant recovery with like-for-like consolidated throughput up by 9%, while the company's EBITDA margin of approximately 40% has now recovered to close to pre-crisis levels. Furthermore, the recent sale of its Australian assets is a positive credit factor and will have an accretive impact on the group's EBITDA margins."

The ratings reflect the standalone credit profile of DP World and include neither support nor constraint from its ultimate parent, the Dubai Government. According to Fitch's Parent and Subsidiary Linkage methodology, the agency believes that DP World's links with the Dubai Government are moderate given the absence of any formal financial guarantees and the fact that DP World's assets have remained ring-fenced during the debt restructuring process of its direct parent company, Dubai World. In addition, Fitch understands that DP World's debt has no cross-acceleration provisions related to its direct parent and the subsidiaries above DP World.

Fitch expects container trading volumes to improve, driven by the export-led growth in the emerging economies, but at a slower pace than in the past few years. This should benefit DP World given its bias towards emerging markets which account for around 75% of its trading volumes.

DP World has a record of aggressive acquisitions and large capital investment expansion projects. However, during the last downturn DP World's management reduced the amount of expansionary projects and began several cost cutting initiatives that helped to minimize the impact of declining profitability, thus supporting cash preservation.

Leverage remains high with lease adjusted net debt to EBITDAR at around 5.0x as of year-end 2010. However, Fitch anticipates that this metric will gradually decline to 4.5x as profitability improves. DP World's debt primarily consists of senior unsecured borrowings under the company's GMTN programme, a USD1.5bn Sukuk and a USD3bn revolving credit facility along with a smaller amount of senior secured credit facilities.

In Fitch's view this high level of leverage represents the upper limit for the company at the current ratings and is partially mitigated by DP World's demonstrated cash flow generating ability and strong liquidity. Cash totalled USD2.6bn as of December 2010, and is expected to increase with the cash proceeds from the Australian asset sale. Fitch also expects that the company will reduce its gross leverage through the application of a sizeable proportion of the group's cash balances, to pay down the USD3bn revolving facility due in 2012.

The Stable Outlook reflects Fitch's expectation that over the near to medium term, DP World will maintain a moderate financial policy despite its aggressive expansion record. In addition, the company's solid domestic position and high exposure to emerging markets reflected in its above-average margins, is likely to remain largely unchanged over the medium term.

Significant new project developments or any major acquisitions that require sizable capital investments and will result in lease adjusted net leverage in excess of 4.5x for a sustained period are likely to put pressure on the ratings. In addition, any potential involvement of DP World's assets in the restructuring of Dubai World would also have negative implications for the ratings.

The terms and conditions of the GMTN documentation include a change of control clause, a negative pledge clause and a cross-acceleration provision. English law is applicable.

Global Arab Network

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