March 08 - Fitch Ratings has affirmed DP World Limited's (DP World) Long-Term
Issuer Default Rating (IDR) at 'BBB-' with a Stable Outlook. Fitch has also affirmed the senior
unsecured rating at 'BBB-' and the Short-term IDR at 'F3'. The Sukuk unsecured trust
certificates issued by DP World Sukuk Limited have been affirmed at 'BBB-'.
DP World's ratings reflect its strong position as one of the largest global
container terminal port operators, with a geographically diversified portfolio
of assets in high growth emerging markets and key locations. Additional positive
factors include the relatively high remaining average life of its concessions,
its record of sustained operating cash flow generation and strong liquidity
position. In H111, liquidity was bolstered by the USD1.5bn cash proceeds raised
from the sale of a 75% stake in its Australian assets.
These strengths mitigate the cyclicality of the industry, which is correlated to
macroeconomic developments, and the concentration of the company's earnings at
the company's port in Dubai, Jebel Ali. While Jebel Ali represents a sizeable
and reliable business base, representing the gateway to the Middle East as well
as India and Africa, in 2010 Jebel Ali accounted for almost 40% of the group's
total throughput. The rating is also constrained by the company's capital
intensive and acquisitive nature and consequently high leverage. Continuous
development and expansion is necessary in order for the company to win new
concession contracts, maintain market share and adapt to changing vessel sizes.
As at FY10, lease-adjusted net debt to EBITDAR was around 5.0x and FFO net
adjusted leverage around 5.2x. Although these metrics had both decreased at H111
to around 3.9x on an annualised basis, they are expected to remain high at
around 4.5x in FY12 and FY13. Management plans to spend around USD3.7bn between
FY12 to FY14 and Fitch anticipates this will most likely be front-loaded.
In Fitch's view, lease-adjusted net debt to EBITDAR and FFO net adjusted
leverage of 4.5x represents the upper limit for the company at the current
'BBB-' rating level. Leverage in excess of 4.5x for a sustained period would
likely place pressure on the ratings. Fitch expects increases in leverage will
be limited by an improvement in trading volumes and EBITDA margins in the medium
term. These are forecast to be driven by growth in emerging markets, albeit at a
slower pace than in the past few years, and continued cost-cutting initiatives.
However, risks to performance include further downward revisions to GDP growth
and potentially, risks from the container shipping industry, which remains
troubled by severe structural issues. Impacts are not likely to be material
given DP World's diversified portfolio. Nevertheless, Fitch is wary of increased
competition from increased route-sharing and alliances between container
shipping companies, particularly where companies within these alliances have
their own terminals in nearby locations. There is also some increased risk of
customer payment delays or bad debts.
Management has continually stated it intends to be disciplined in its capex and
acquisition plans and that capex spending will be determined by increased
demand. However, DP World has a record of aggressive acquisitions and large
capital investment expansion projects. Further risks to the rating may include
new project developments or major acquisitions, which require sizable capital
investments and result in lease-adjusted net leverage or FFO net adjusted
leverage exceeding 4.5x for a sustained period. If there is a deterioration in
industry fundamentals and weakening in performance, Fitch would expect the
company to reduce or defer capex-spending. While some concessions require
certain levels of capex spending, DP World retains control over timing and
consequently has some flexibility to defer investments.
As at H111, cash totalled USD4.1bn and more than sufficiently covered short-term
debt of USD153m (including finance lease liabilities) in addition to the
fully-drawn USD3bn syndicated facility due in October 2012. Following the
proceeds from the sale of 75% of its Australian assets, it is expected that the
company will seek to reduce its gross leverage and repay the USD3bn syndicated
facility from its cash balances. Fitch understands that a new syndicate loan
facility of between USD1bn-USD1.5bn will be put in place but that the company
currently has no plans to draw down on this in FY12. DP World's debt primarily
comprised senior unsecured borrowings under the company's USD3bn revolving
credit facility, its GMTN programme and a USD1.5bn Sukuk. Secured bank debt as a
proportion of total debt remained relatively low at around 11%.
The ratings reflect the standalone credit profile of DP World and do not include
support or 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 remained
ring-fenced during the debt restructuring process of its direct parent company,
Dubai World. In addition, despite change of control clauses in the documentation
of its syndicated loan, Sukuk bond and MTN programme, Fitch understands that DP
World's debt has no cross-acceleration provisions related to its direct parent
and the subsidiaries above DP World.