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Rating Action:

Moody's assigns a Ba2 rating to DP World's proposed hybrid instruments

22 Jun 2020

Paris, June 22, 2020 -- Moody's Investors Service, ("Moody's") has today assigned a Ba2 rating to the proposed benchmark sized reset subordinated perpetual notes and sukuk certificates ("hybrid instruments") to be issued by DP World PLC (DP World) and DP World Salaam, respectively. DP World's and DP World Crescent Limited's existing ratings remain unchanged. The rating outlook remains stable for DP World and assigned stable for DP World Salaam.

A complete list of rating actions can be found at the end of this press release.

RATING RATIONALE

The Ba2 rating assigned to the proposed benchmark sized hybrid instruments is two notches below DP World's Baa3 senior unsecured and issuer rating, because they will be deeply subordinated to the senior unsecured obligations of DP World and its subsidiaries and rank senior only to ordinary shares. In addition, the hybrid instruments will be perpetual and DP World has the option to defer coupon payments on a cumulative and compounding basis. The rating on the hybrid instruments are subject to review of the final documentation, the terms and conditions of which are not expected to change in any material way from the draft documents reviewed.

The proposed hybrid notes will qualify for the "basket C" and a 50% equity treatment of the borrowing for the calculation of the credit ratios by Moody's (please refer to Moody's "Hybrid Equity Credit" methodology published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125264). For every $1 billion of hybrid instruments issued the 50% equity treatment would lead to a $500 million reduction of DP World's Moody's adjusted gross debt.

Moody's views this transaction as credit positive because DP World will replace a sizeable portion of the existing bridge with a longer dated instrument. However, Moody's expects the improvement in credit ratios from this transaction to be modest.

The proposed sukuk reset subordinated perpetual certificates, issued by DP World Salaam, a special purpose vehicle established by DP World, mimic the same characteristics and rank pari passu to the proposed reset subordinated perpetual notes. The Ba2 rating reflects Moody's view that the hybrid sukuk certificate holders will (1) effectively be subordinated to DP World's senior unsecured debt obligations; (2) not be exposed to the underlying performance risk of the relevant portfolio of sukuk assets; (3) have no preferential claim or recourse over the sukuk assets, or rights to cause any sale or disposition of such assets except as expressly provided under the transaction documents; and (4) only have rights against DP World on a subordinated basis.

Moody's also notes that its rating of the hybrid certificates does not express an opinion on the sukuk structure's compliance with Sharia law.

DP World's Baa3 issuer rating is supported by (1) the company's diversified global operations; (2) the expected positive long-term growth in international container traffic; (3) its solid profitability and liquidity; and (4) the company's flexibility in delaying capital spending to support the balance sheet, if needed. The company focused origin and destination (O&D) ports are relatively less sensitive to cyclical downturns compared to transshipment ports.

The issuer rating also reflects (1) the weak leverage and interest cover ratios and Moody's expectation that these credit metrics will improve over the next 2 years as management seek to restore net leverage within its financial policy target of 4x net debt/ EBITDA (pre IFRS 16); (2) strong correlation to fluctuating global trade and sharp decline in trade volumes expected in 2020 as a result of coronavirus; (3) increased linkages to the credit quality of and operational exposure to the Emirate of Dubai; and (4) greater exposure to non-port-related businesses, which, in some cases, have weaker credit risk profiles than that of DP World's core port operations.

LIQUIDITY

The rating incorporates Moody's view that DP World's liquidity is sufficient to withstand the difficult operating conditions under its central scenario, underpinned by $3.4 billion of cash balances as of 31 March 2020 combined with a $2 billion revolving credit facility, of which $1 billion is undrawn, with good covenant headroom. Due to lower expected capex of around $800 million per year, DP World will be free cash flow positive over the next few years. Moody's expects free cash flows and proceeds from asset monetisations to be used to repay debt.

RATING OUTLOOK

The stable outlook reflects DP World's broad geographic portfolio of well-located port assets, variable cost structure and a strong liquidity profile that gives DP World flexibility to weather the expected decline in global trade in 2020. It further incorporates the expectation that DP World's FFO to debt will increase toward 10% in 2021 and assumes management will balance the need for acquisitions against its commitment to reduce net leverage.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

As the rating of the hybrid instruments are positioned relative to the senior unsecured rating of DP World, their rating could be impacted either by a change in the Baa3 senior unsecured issuer rating of DP World, or by a re-evaluation of its relative notching.

Upward rating pressure to the issuer rating could result if DP World's financial profile strengthens beyond current expectations and the company establishes a track record of higher-than-expected cash generation or debt reduction that would sustainably result in adjusted cash interest coverage above 4.0x and adjusted FFO to debt trending towards 15%. An upgrade would also require a track record of DP World adhering to its financial policies and reduced risk of additional sizeable dividends to its shareholder.

The issuer rating could be downgraded if global trade remains weak, asset monetisations are delayed or DP World undertakes higher-risk development projects or acquisitions that leads to a slower deleveraging path such that adjusted cash interest coverage is below 2.5x and adjusted FFO to debt is below 8%, both on a sustained basis. The rating would also come under pressure if DP World's (including PFZW debt obligations) liquidity profile deteriorates.

Given DP World's sizeable operational exposure to Dubai, its rating position would also need to be considered in the context of the Government of Dubai's credit profile and the overall macroeconomic environment in Dubai.

LIST OF AFFECTED RATINGS

Assignments:

..Issuer: DP World PLC

....Junior Subordinated Regular Bond/Debenture, Assigned Ba2

..Issuer: DP World Salaam

....Junior Subordinated Regular Bond/Debenture, Assigned Ba2

Outlook Actions:

..Issuer: DP World Salaam

....Outlook, Assigned Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Privately Managed Port Companies published in September 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1040210. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The local market analyst for these ratings is Dion Bate, +971 (423) 795-04.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

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.

Paco Debonnaire
Asst Vice President - Analyst
Public Proj & Infrastr Fin
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Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
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Releasing Office:
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No Related Data.
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