DP World’s self-help entails self-harm. The Dubai-based ports and logistics operator is buying back a 19.55% stake not already owned by the state in a deal valuing the company at $14 billion. There’s a logic to doing so, but investors who see the emirate as a capital hub will still raise their eyebrows.
On one level, DP World is just the latest company to fall out of love with the public markets, which it entered in 2007 by listing a bit of itself at $26 a share. True, the recent share price of around half that is due to a combination of more Gulf-focused capital flowing to Saudi Arabia and a trade war-linked decline in the global shipping industry, which coronavirus and Middle East tensions could exacerbate. But shareholders focused on short-term dividends have also rubbed against Chief Executive Sultan Ahmed Bin Sulayem’s long-term plan to move more into logistics. And he has tapped debt markets rather than equity markets for growth capital anyway.
Still, freedom comes at a price. As a listed company, DP World has a free strategic hand not enjoyed by state-owned ultimate parent Dubai World, which is beholden to creditors following a financial crisis-era debt crunch. To keep things that way, DP World’s immediate parent Port & Free Zone World is paying a $5.2 billion dividend to Dubai World, which will help reduce the latter’s debt pile. That means PFZW’s consolidate leverage will jump to around 6 times EBITDA and won’t hit the required 4 times level until 2022.
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