March 26 (Bloomberg) -- DP World Ltd. will repay a $3 billion revolving credit facility six months ahead of schedule with its own cash as the world’s third-biggest port operator sets up a $1 billion facility for investments.
The five-year facility maturing in October will be repaid between April 4 and 10, the Dubai-based company said in a statement to Nasdaq Dubai today. The payment will reduce DP World’s debt to about $4.7 billion and leave it with a cash balance of about $1.2 billion, according to the statement.
DP World, which operates more than 60 terminals across six continents, is in the final stages of agreeing with banks on documentation for the new $1 billion five-year revolving credit program that it said will provide “flexibility to manage cash flow and investment in our portfolio.” DP World is expanding in China, India and the Middle East as it seeks to boost capacity by 42 percent to 95 million twenty-foot equivalent container units in the 10 years to 2020.
“This clearly demonstrates the strong level of cash flow generation from DP World’s business,” Chavan Bhogaita, head of the markets strategy group at National Bank of Abu Dhabi PJSC, said in an e-mail today. “It also answers some of the broader skepticism among some observers in terms of Dubai Inc.’s businesses and their ability to generate cash.”
DP World said in December it would invest $850 million in the next three years to increase capacity at its flagship Jebel Ali port on the outskirts of Dubai.
Default Risk Drops
Dubai, home to the world’s tallest tower and an indoor ski slope, roiled global markets in 2009 when state-owned holding company Dubai World announced plans to delay payments on about $26 billion of debt. The emirate received a $20 billion loan from the United Arab Emirates’ central bank, the Abu Dhabi government and its banks to help it contend with the global credit crisis and a real estate crash.
State-linked companies have $10.3 billion of debt coming due this year, according to Bank of America Merrill Lynch estimates. DP World’s payment marks a “significant step for Dubai in terms of restoring confidence among international investors,” Bhogaita said.
The emirate’s default risk has declined 105 basis points this year to 340 on March 23, according to five-year credit default swap prices from data provider CMA. The contracts pay the buyer face value if a borrower fails to meet its obligations. Dubai’s swaps are almost triple those of neighboring Abu Dhabi, which were at 117 on March 23, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
Investors have been concerned that some companies may struggle to repay debt, particularly property company DIFC Investments LLC and business park operator Jebel Ali Free Zone FZE, which together have $3.25 billion of bonds due in 2012. Mohammed Al Shaibani, director general of the Dubai ruler’s court, is “very confident they will manage to sort out these issues on their own,” he said in February.
DP World’s new credit facility has been agreed on with a group 10 to 12 banks, three people familiar with the matter said yesterday. It may pay a margin of 2.25 percentage points above the London interbank offered rate, two of the people said, declining to be identified because the information is private.
DP World is rated Baa3 by Moody’s and BBB- by Fitch, both the company’s lowest investment-grade scores. The rating reflects its status as one of the largest global container terminal port operations, although it is “constrained by the company’s capital-intensive and acquisitive nature and consequently high leverage,” Fitch said in a report March 8. “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.”
DP World’s shares gained less than 0.1 percent to $11 at 1:52 p.m. in Dubai. They have risen 14 percent this year.
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