DP World Ltd., the Dubai-controlled ports operator, raised A$1.5 billion ($1.5 billion) selling a stake in its Australian unit as part of a plan to reduce debt and focus on more profitable markets.
Citi Infrastructure Investors, a unit of Citigroup Inc., and a partner agreed to buy 75 percent of the business, which operates terminals at five Australian ports, DP World said in a e-mailed statement today. DP World, which will continue to invest in and manage the terminals, expects regulatory approval for the transaction by the end of the first quarter.
DP World plans to use all the proceeds to repay borrowings. Separately, parent Dubai World is delaying payment on more than $30 billion of debt and unpaid bills built up by constructing palm-shaped islands off the Dubai coast and amassing stakes in companies including luxury retailer Barneys New York Inc. and U.S. casino group MGM Mirage. The deal will also pare DP World’s reliance on Australia as pending competition from Hutchison Port Holdings Ltd. threatens its market share of about 50 percent.
“The Australian assets are great, but it could be a good time to monetize it because we don’t know whether the recent strong performance is sustainable,” said Redwan Ahmed, a Dubai-based equity analyst at investment bank EFG-Hermes Holding SAE who has a “neutral” rating on the stock.
DP World rose as much as 8 percent to 65 cents before closing at 64 cents in Dubai today. That gives it a market value of $10.6 billion.
The company has net debt of $5.9 billion and almost $2.7 billion of cash before the Australia deal, Chief Financial Officer Yuvraj Narayan said on a conference call today. Its earliest maturing loan is a $3 billion facility in 2012, he said. Interest-bearing loans stood at $7.4 billion at the end of June, according to the company’s first-half earnings statement, which also includes debt of subsidiaries and joint ventures.
DP World will earn a profit of more than $300 million from the deal, Narayan told the conference call. The transaction will allow DP World “to remain actively involved in Australia” while helping cut debt, Narayan said in the statement.
DP World’s shares rose today because “the market did not price in such valuation,” Kareem Murad, an analyst at investment bank Shuaa Capital PSC wrote in a report. The transaction implies an enterprise value to Ebitda multiple of 18.9, while DP World itself trades at a multiple of 14.5, based on its 2009 earnings, Murad said.
“Although the Australian ports added to the diversity of DP World’s portfolio, growth prospects are relatively small compared to the other regions,” Murad said.
DP World Australia runs terminals in Brisbane, Sydney, Melbourne, Adelaide and Fremantle, with capacity of more than 3.5 million 20-foot container units a year, according to today’s statement. The Australian unit had earnings before interest, taxes, depreciation and amortization of A$96 million in 2009 and the deal gives it an enterprise value of A$1.82 billion, according to the statement. The payment to DP World includes repayment of some cash owed by the Australian unit.
“There is no plan to sell assets in any other region,” Chairman Sultan Ahmed bin Sulayem said on the call. “This is purely an opportunity to better manage our money” and to use it in higher-margin markets of South Asia, Africa and South America, he said.
The company is targeting a long-term net debt-to-Ebitda ratio of between 3.5 and 4.5, Narayan said today. The ratio was 4.7 at the end of 2009, according to Bloomberg calculations.
DP World Australia and Asciano Ltd.’s Patrick unit each handle about half of the nation’s container shipments, UBS analysts led by Simon Mitchell said in a Dec. 6 note. DP World’s market share may fall to 36 percent in five years and Patrick’s to 43 percent, as Hutchison, the world’s largest ports operator, adds facilities in Brisbane and Sydney, UBS said.
Sales of Australian businesses this year have more than doubled to $115 billion from a six-year low in 2009, as buyers seek assets in one of the few developed markets to avoid recession during the global financial crisis. Today’s transaction takes the value of such deals this quarter to $59 billion, the most on records dating back to 1998, according to Bloomberg data.
DP World, which operates 50 terminals across Asia, Europe, Africa and the Americas, said Oct. 25 that third-quarter cargo volume grew 14 percent to 13 million containers, after a global trade rebound increased freight handling. Traffic fell 8 percent last year as the worldwide recession cut demand.
Second-half earnings are likely to be better than the first half, DP World said Aug. 18, after reporting better-than-forecast profit in the six months to June of $176.6 million.
Deutsche Bank AG and Citigroup Global Markets advised DP World on today’s deal, while HSBC Holdings Plc and UBS AG advised Citi Infrastructure, according to the statement.
DP World is in the early stage of discussions to invest in expanding the San Antonio port in Chile, Chairman Sulayem said. Work on a secondary listing in London is also progressing and expected to be completed by the second quarter.