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Rating Action:

Moody's affirms DP World's Baa3 and JAFZ's Ba1 ratings, stable outlooks

17 Nov 2014

London, 17 November 2014 -- Moody's Investors Service today affirmed the Baa3 long-term issuer rating of DP World Limited (DP World) as well as the Ba1 corporate family and Ba1-PD probability of default rating of Jebel Ali Free Zone FZE (JAFZ). The outlook on all ratings remains stable. Please refer below for a list of debt instruments affected by these rating actions.

Moody's actions follow DP World's announcement on 13 November 2014 that it plans to acquire its sister company, Economic Zones World FZE (EZW), for $2.6 billion. EZW's most noteworthy asset is JAFZ, the operator of an offshore business and logistics hub connected to DP World's flagship Jebel Ali Port, which contributes 97% of EZW's total revenue and operating profit. Should the transaction be approved by independent shareholders in December, DP World is expected to complete the acquisition in Q2 2015.

"Our affirmation of DP World's rating reflects our view that the company's credit metrics will remain within our existing rating guidance post-acquisition," says Rehan Akbar, a Moody's Analyst and local market analyst for the issuer. "On the other hand, JAFZ's affirmation reflects our expectation that the company's existing credit worthiness will remain intact".

RATINGS RATIONALE

Today's action on DP World reflects Moody's view that its current Baa3 stable rating is already positioned to accommodate the company's growth plans. While the EZW acquisition diverges from its strategy of expanding its ports business, DP World and JAFZ will benefit from possible synergies given the strong linkage between the port and free zone.

JAFZ in particular could stand to benefit from this transaction should DP World leverage its global expertise and financial flexibility to support growth in the free zone as well as make infrastructure investments and logistic upgrades. However, the acquisition will increase DP World's exposure to Dubai, and economic volatility in the Emirate is likely to have a greater impact on the combined group's financial performance.

In Moody's view, the transaction will limit DP World's ability to make material acquisitions over the next several years, if it plans to maintain its credit metrics within the level commensurate with its Baa3 rating. DP World currently has strong liquidity with available cash balances of about $3.5 billion, annual operating cash flow generation in excess of $1.2 billion as well as access to a $3.0 billion term and revolving facility. The acquisition will be funded through existing cash sources and existing credit facilities. However, Moody's notes that DP World has material on-going capital expenditure needs (capex guidance of $1.0 billion in 2014 and approximately $1.5 billion in 2015) and also has a $1.5 billion sukuk maturing in 2017, which could weigh on its liquidity profile in the future.

The affirmation of JAFZ's ratings assumes that the company's current capital structure is not negatively affected post-acquisition. DP World has communicated that the existing $650 million trust certificates issued by JAFZ Sukuk (2019) Limited and JAFZ's syndicated Islamic facility will remain in place. Should there be increased operational and financial integration between JAFZ and DP World, Moody's anticipates that over time ratings of both entities could converge towards that of DP World.

WHAT COULD CHANGE THE RATING UP / DOWN -- DP WORLD

Moody's rating guidance for DP World's Baa3 rating and stable outlook is adjusted funds from operations (FFO) interest cover between 3.0x to 3.5x and adjusted retained cash flow (RCF)/net debt in the 10% to 15% range. For the 12-month period ended June 2014, DP World's credit metrics were at the upper end of the guidance with FFO interest cover at 3.9x and RCF/net debt of 17% (versus 3.6x and 14.7%, respectively, as of year-end 2013). Under Moody's pro-forma calculations including the acquisition, DP World's FFO interest cover would remain strong but its RCF/net debt would weaken to about 13% (versus about 11% as of year-end 2013).

Upward rating pressure on DP World is unlikely over the medium term, given the expected increase in its net debt position, substantially increased investment exposure to Dubai's economy, reduced headroom in credit metrics for the Baa3 rating position and material ongoing capital expenditure needs to grow the ports business.

WHAT COULD CHANGE THE RATING UP / DOWN -- JAFZ

JAFZ could face upward rating pressure if it begins to benefit from synergies with DP World, such as reduced operating expenses and lower financing costs. In addition, Moody's will need to assess any change in strategic direction of JAFZ's business, including how financial and dividend policies evolve. The transaction is not anticipated to trigger any change of control put option on JAFZ's debt, given that the ultimate owner remains the Government of Dubai with an indirect ownership exceeding 50%.

Moody's could downgrade JAFZ's rating if the company's standalone credit strength were to deteriorate substantially, resulting in net debt/EBITDA trending towards 4.5x and EBITDA/fixed charges falling below 2.5x. This could be a result of a weaker operating environment that displays decreased occupancy rates and falling rents combined with an increase in financial debt. Should DP World successfully acquire JAFZ, any weakening of credit metrics would need to be also assessed in light of potential support from DP World.

The following ratings were affected by today's rating actions:

Outlook Actions:

..Issuer: DP World Limited

.... Outlook, Remains Stable

..Issuer: DP World Sukuk Limited

.... Outlook, Remains Stable

Affirmations:

..Issuer: DP World Limited

.... Long Term Issuer Rating (Foreign Currency), Affirmed Baa3

.... Long Term Issuer Rating (Local Currency), Affirmed Baa3

.... Senior Unsecured Conv./Exch. Bond/Debenture (Foreign Currency) Jun 19, 2024, Affirmed Baa3

.... Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)Baa3

.... Senior Unsecured Regular Bond/Debenture (Foreign Currency) Jul 2, 2037, Affirmed Baa3

..Issuer: DP World Sukuk Limited

.... Senior Unsecured Regular Bond/Debenture (Foreign Currency) Jul 2, 2017, Affirmed Baa3

Outlook Actions:

..Issuer: JAFZ Sukuk (2019) Limited

.... Outlook, Remains Stable

..Issuer: Jebel Ali Free Zone FZE

.... Outlook, Remains Stable

Affirmations:

..Issuer: JAFZ Sukuk (2019) Limited

.... Senior Unsecured Regular Bond/Debenture (Foreign Currency) Jun 19, 2019, Affirmed Ba1

..Issuer: Jebel Ali Free Zone FZE

.... Probability of Default Rating, Affirmed Ba1-PD

.... Long Term Corporate Family Rating (Foreign Currency), Affirmed Ba1

.... Long Term Corporate Family Rating (Local Currency), Affirmed Ba1

The principal methodologies used in rating DP World Limited and DP World Sukuk Limited were Privately Managed Port Companies published in May 2013, and Government-Related Issuers published in October 2014. The principal methodologies used in rating JAFZ Sukuk (2019) Limited and Jebel Ali Free Zone FZE were Global Rating Methodology for REITs and Other Commercial Property Firms published in July 2010, Government-Related Issuers published in October 2014 and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Dubai, United Arab Emirates (UAE), DP World Limited ranks amongst the world's four largest container terminal operators by capacity and throughput. DP World is one of the most geographically diversified companies in the Emirate of Dubai (not rated), currently operating approximately 65 terminals across six continents. The Government of Dubai indirectly owns 80.5% of DP World through Port and Free Zone World FZE, a subsidiary of Dubai World (not rated). For the 12-month period ended June 2014, DP World reported revenue of $3.2 billion and net income of $582 million.

Jebel Ali Free Zone FZE is the operator of the Jebel Ali Free Zone, which is adjacent to Dubai's Jebel Ali Port and is the largest business logistics hub in the Middle East. For the 12-month period ended June 2014, JAFZ reported revenues of $436 million and a net income of $225 million.

The Local Market analyst for this rating is Rehan Akbar, 971.4.237.9565.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Xavier Lopez del Rincon Troussel
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

David Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms DP World's Baa3 and JAFZ's Ba1 ratings, stable outlooks
No Related Data.
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