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Rating Action:

Moody's upgrades DP World's ratings to Baa1; stable outlook

06 Aug 2018

London, 06 August 2018 -- Moody's Investors Service, ("Moody's") has today upgraded the long-term issuer rating of DP World Limited (DPW) to Baa1 from Baa2. The outlook on all ratings is stable.

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

"Our decision to upgrade DP World's ratings reflects a strong track record in managing its business through industry cycles as well as achieving its growth ambitions, while maintaining a healthy financial profile," says Rehan Akbar, a Moody's Vice President -- Senior Analyst. "DP World's growing scale and geographic footprint has increased its business resilience which Moody's now sees as more appropriately reflected in the Baa1 rating."

RATINGS RATIONALE

Today's rating action on DP World reflects (1) its diversified global operations; (2) the positive expected long-term growth in international container traffic; (3) its solid profitability and liquidity profile; (4) its expected adherence to leverage targets as proven by management's track record; and (5) its flexibility to delay capex to support the balance sheet if needed. The company tends to focus on origin and destination ports, which are relatively less sensitive to cyclical downturns as opposed to transshipment ports. Financial metrics are healthy, with Moody's adjusted EBITDA margin of 58.6%, adjusted funds from operations (FFO) interest coverage of 5.3x and adjusted FFO/debt of 19% as of 2017YE.

DPW's Baa1 credit rating also incorporates its (1) strong correlation to fluctuating global trade volumes; (2) material geographic exposure to Dubai; and (3) significant ongoing capex and the occasional bolt-on acquisitions that temper deleveraging, although Moody's expects the company to keep internal leverage within management targets of reported net debt/ EBITDA below 4.0x. Moreover, Moody's assumes a lack of negative interference by DP World's ultimate corporate shareholder, Dubai World.

The risk of escalation in trade tensions between the USA and its key trading partners creates significant uncertainty in global trading conditions and is a downside risk for DPW. Moody's believes the increased uncertainty will adversely impact business confidence and delay investment decisions leading to a weaker global trade outlook in H2 2018 and potentially well into 2019. DPW's direct exposure to export ports in the Far East is limited, with the Pusan Newport Company (PNC) terminal in Korea and the Saigon Premier Container Terminal (SPCT) in Vietnam the only terminals in that region which are consolidated into DPW's financials. The company is however exposed to non-consolidated minority stakes in several export terminals in Qingdao, China from which it has received dividend income in the past. The company does not operate any port in the USA and its operations in Canada comprise less than 5% of the group's total container capacity.

Overall, Moody's believes DPW's credit metrics will remain commensurate to a Baa1 rating even after sensitizing moderate weakness in DPW's terminals that could be potentially affected by rising trade tensions. Moody's also recognizes that the company's diversified operations shows that while parts of its port portfolio may face more challenging operating conditions in the near future, other parts of the portfolio may be net beneficiaries of any changes to global trade flows. Moody's base case therefore does not envision a more severe 'trade war' that results in a structural deterioration in DPW's cash flow generating ability.

LIQUIDITY

DPW has a strong liquidity profile underpinned by (1) reported cash balances of $1.5 billion as of 2017YE; (2) access to a committed $2.0 billion revolving credit facility that matures in June 2023 and was almost completely undrawn as of 2017YE; and (3) our expectation that the company will generate around $2.0 billion of operating cash flows annually (including dividend income). Total sources will be more than sufficient to cover forecasted outflows over the next 12 months of (1) up to $1.4 billion capital expenditures; (2) around $350 - $380 million of dividend payments; (3) $302 million of debt maturing in 2018; and (4) M&A activity such as the acquisition of Drydocks World and Dubai Maritime City closed in January 2018. Over the past five years, DPW has been broadly free cash flow neutral excluding M&A activity and Moody's anticipates that this trend will continue.

RATIONALE FOR STABLE OUTLOOK

The stable outlook reflects our view that DPW will remain resilient over an industry cycle as a result of its broad geographic footprint and financial flexibility. The outlook assumes that the current global trade uncertainty will lead to slower growth rates for DPW over the coming 12-18 months but events will not be severe enough to lead to a material deterioration in cash flow generation. The stable outlook also assumes that DPW will not exceed or persistently maintain leverage at the upper end of its net debt to EBITDA guidance of 4.0x (on a reported basis).

WHAT COULD CHANGE THE RATING UP / DOWN

Upward rating pressure could result if the company establishes a track record of sustainably maintaining Moody's adjusted FFO interest coverage above 6.0x and adjusted FFO to debt above 25%. In addition, evidence of the company formally committing to preserving these credit metrics through stated financial policies would be supportive of an upgrade. Given the concentration risks in the Emirate of Dubai, any further upward pressure would also require Moody's to assess the credit interlinkages between DP World and the domestic macroeconomic environment.

Negative pressure on the rating could result from weaker liquidity management or from persistently higher leverage, with adjusted FFO interest coverage falling towards 4.5x and adjusted FFO to debt trending towards 15%. Furthermore, the rating could be negatively affected if DPW exceeds its net leverage guidance, potentially as a result of assuming higher-risk development projects or higher than anticipated M&A activity.

LIST OF AFFECTED RATINGS

Upgrades:

..Issuer: DP World Limited

....LT Issuer Rating, Upgraded to Baa1 from Baa2

....Senior Unsecured Conv./Exch. Bond/Debenture, Upgraded to Baa1 from Baa2

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

....Senior Unsecured Medium-Term Note Program, Upgraded to (P)Baa1 from (P)Baa2

..Issuer: DP World Crescent Limited

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

....Senior Unsecured Medium-Term Note Program, Upgraded to (P)Baa1 from (P)Baa2

Outlook Actions:

..Issuer: DP World Limited

....Outlook, Remains Stable

..Issuer: DP World Crescent Limited

....Outlook, Remains Stable

The principal methodology used in these ratings was Privately Managed Port Companies published in September 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The Local Market analyst for these ratings is Rehan Akbar, +971 (423) 795-65.

Headquartered in Dubai, United Arab Emirates (UAE), DP World ranks as the world's third largest container terminal operator by capacity and throughput as measured by equity TEU. DPW is one of the most geographically diversified companies in the Emirate of Dubai, currently operating 78 marine and inland terminals across six continents, including its flagship facility at Jebel Ali port in Dubai.

DP World's shares are listed on Nasdaq Dubai. The government of Dubai indirectly owns 80.45% of DP World through Port and Free Zone World FZE, a subsidiary of Dubai World. As of 31 December 2017, DP World reported revenue of $4.7 billion and net income of about $1.2 billion.

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 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.

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

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.

Erica Gauto Flesch
Asst Vice President - Analyst
Infrastructure Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

David G. Staples
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

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

No Related Data.
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