DP World is delisting from the Dubai stock market, however it is not entirely clear why.
A primary reason seems to be the desire of the Emirate of Dubai’s state-owned investment vehicle, Dubai World, to restructure its debts. To do so, one of Dubai World’s subsidiaries called ‘Port and Free Zone World’, which already owns 80.45% of DP World, will buy the 19.55% of DP World that it does not already own. It is reported by Reuters and others that this will, in turn, enable DP World to pay Dubai World US$5 billion. This implies that Dubai is keen to use the balance-sheet of DP World to reduce its own investment vehicles indebtedness.
The purchase of the equity by Port and Free Zone World is being financed by the leverage of DP World’s balance sheet to the sum of $8.1bn.
However, the Chairman and CEO of DP World, Sultan Ahmed bin Sulayem said that the reasoning behind the deal was that the “global ports and logistics industry has been undergoing a significant transition as a result of the consolidation of the customer base and the vertical integration of several competitors. DP World must be able to continue responding effectively to this rapidly changing landscape and to invest in the future. Returning to private ownership will free DP World from the demands of the public market for short term returns which are incompatible with this industry, and enable the company to focus on implementing our mid-to-long-term strategy to build the world’s leading logistics provider, backed by our globe-spanning network of ports, economic zones, industrial parks, feeders, and inland transportation.”
These two explanations seem to exhibit some tensions. It might be suggested that increasing the leverage of DP World would reduce its ability to invest, yet the change in the structure of the port industry would imply that DP World will have to invest more in new types of capability. If the Emirate of Dubai is using its valuable asset of DP World to help it improve the quality of its financial position then this will surely have some implications for DP World’s competitive position in the long-term.
Source: Transport Intelligence, February 18, 2020
Author: Thomas Cullen