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Global Credit Research - 02 Nov 2010
USD3.25 billion of rated debt affected
DIFC - Dubai, November 02, 2010 -- Moody's Investors Service affirmed the Ba1 Issuer Rating of DP World ("DP
World" or "the company") and the Ba1 rating for DP World Sukuk Limited
and changed the rating outlook to positive from stable.
Today's outlook change is in response to: (1) DP World's solid
operating performance year to date, supporting expectations that
debt protection measures will continue strengthening in line with the
company's recent public commitments to prioritise deleveraging;
(2) DP World's intention to refinance in the course of 2011 the
USD3 billion syndicated revolving credit facility maturing in October
2012; and (3) a debt restructuring agreement for direct parent company
Dubai World that was achieved without any impact on DP World's financial
or operational profile.
" The outlook change to positive for DP World reflects Moody's view that
the improving fundamentals for port operators - with increasing
volumes of global trade flows, especially in emerging markets -
are likely to remain favourable over the medium term," explains
Martin Kohlhase, Assistant Vice President in Moody's Corporate Finance
Group in Dubai. Consolidated throughput, which drives the
company's top line growth, has increased in excess of 14%
in the first nine months of 2010 compared to the same period last year,
in line with industry trends, while DP World has maintained a solid
EBITDA margin as adjusted by Moody's above 40% as of June
2010. Activities in the EMEA region continue to drive revenue generation
and operating margins with a share of 60% and 65% of the
group's total in the first half of 2010. This trend is expected
to continue in the medium term with the second half of the year anticipated
to reflect increased seasonal trade flows as has historically been the
case. "The company's solid operating performance trend
and its recently articulated commitment to achieve leverage, as
measured by a consolidated reported net debt to EBITDA (excluding Moody's
standard adjustments), in the range between 3.5x and 4.0x
over the next 18 months are key factors driving the change in outlook."
The change in outlook is also driven by DP World's improving trend
in operating performance combined with the announced intention to refinance
outstandings under its USD3 billion syndicated revolving credit facility
in 2011. With the refinancing, DP World would strengthen
its liquidity profile and would possibly extend its debt maturity profile.
It is also significant that an agreement reached in September to restructure
the debt of Dubai World - DP World's ultimate parent --
did not have any impact on DP World from an operational or financial perspective.
We cannot eliminate the possibility that ownership by Dubai World could
negatively impact DP World in the future. For example, Dubai
World has the ability to extract cash through dividends or sell portions
of DP World or its assets in order to reduce the parent company's
debt. However, the following mitigating factors have been
taken into account in the positive outlook:
- The restructuring of Dubai World's debt did not affect
DP World and the parent has not taken any extraordinary cash distributions
from DP World.
- DP World, as a port and infrastructure operator,
is among the core infrastructure businesses central to Dubai's business
strategy in the region and therefore is likely to be a holding that the
government of Dubai would seek to retain strategically over the long-term.
- Were the government of Dubai to seek to materially reduce its
80 percent shareholding in the future, bondholders benefit from
a change of control clause in case the government of Dubai's ownership
were to fall below 50%.
DP World's ratings continue to include very low assumptions for
government support that does not currently provide any lift to the rating.
According to Moody's, the factors that could over time lead to a
rating upgrade include adherence to achieving more conservatively positioned
financials metrics. Over the next two years, we would expect
DP World to demonstrate adherence to financial metrics at the upper end
of the ranges we have previously articulated for the rating category and
to demonstrate its ability to generate positive free cash flow prior to
a potential upgrade. For instance, an upgrade could be considered
if retained cash flow to net debt strengthens sustainably in the low teens
(%) and FFO interest cover strengthens above 3.0x.
Conversely, DP World's rating would come under negative pressure
if operating performance softens significantly and/or financial policies
become more aggressive resulting in retained cash flow to net debt trending
toward 8% and FFO interest cover toward 2.5x. The
rating could also be downgraded if any financial strategies are contrary
to our current assumptions and would result in a weakening in the credit
Moody's previous rating action on DP World was the confirmation
of its Ba1 rating with a stable outlook on April 7th, 2010.
For the assignment of this rating, Moody's has applied its
rating methodology " Government-Related Issuers: Methodology
Update" published in July 2010, which determines ratings on
the basis of a company's baseline credit assessment, as well as
credit enhancement for exceptional government support. Accordingly,
ratings were assigned by evaluating factors we believe are relevant to
the baseline credit assessment of the issuers, such as i) the business
risk and competitive position of the companies versus others within its
industry, ii) the capital structure and financial risk of the companies,
iii) the projected performance of the companies over the near to intermediate
term, and iv) management's track record and tolerance for risk.
These attributes were compared against other issuers both within and outside
of the companies' core industries and ratings are believed to be comparable
to those of other issuers of similar credit risk. Other methodologies
and factors that may have been considered in the process of rating this
issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
DP World, incorporated in the Dubai International Financial Centre
(DIFC) / United Arab Emirates (UAE), ranks amongst the world's four
largest container terminal operators by capacity and throughput.
DIFC - Dubai
Asst Vice President - Analyst
Corporate Finance Group
Moody's Middle East Ltd.
David G. Staples
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Middle East Limited
Moody's changes outlook on DP World to positive and affirms its Ba1 rating
Gate Village 4, Level 3
P.O. Box 113355
DIFC - Dubai
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