Dubai: DP World’s Thursday announcement that it has agreed to buy Economic Zones World (EZW) for $2.6 billion (Dh9.56 billion), the latest state-linked asset shuffle, is likely to alleviate pressure for Dubai World.
Dubai World, the majority owner of both companies, has a $4.4 billion loan maturing in May 2015.
DP World’s purchase will inject fresh liquidity into its majority shareholder while also removing $859 million of EZW debt, which the port operator said it will take on as part of the deal.
The acquisition will be funded from existing cash and facilities, with Yuvraj Narayan, DP World chief financial officer, telling reporters at a press conference in Dubai on Thursday, the port operator had a combined $6 billion in cash and facilities on hand.
Narayan said talks between DP World and Dubai World over the acquisition took some six to eight months to complete. In April, it was reported that Dubai World had hired New York-based investment and advisory firm Blackstone Group to take a look at its debt and how to meet repayments to creditors.
However, Sultan Ahmad Bin Sulayem, DP World chairman, told reporters his firm initiated the deal with its majority shareholder.
One of EZW’s key assets is the Jebel Ali Free Zone (Jafza), which is located next to DP World’s flagship Jebel Ali Port. DP World executives said the acquisition was made in foresight of Dubai World’s asset sell off.
“Dubai World is looking how to settle their transactions with various lenders and it is no given secret they were going to do some degree of sale of assets,” Narayan said.
“If there was going to be a situation over the next five years where a monetisation of the interest of Dubai World in Jebel Ali [free zone] to be considered it would be seen as a strategic risk to DP World so we pre-empted any such move,” he added.
DP World and Jafza, previously managed under the same company, were separated in 2007 ahead of DP World’s 2011 listing.
Narayan said the deal, which will require shareholder approval, will increase its earnings by 15 per cent and generate a 7 per cent return on capital employed in the first full financial year after the acquisition is complete.
DP World said it expects the acquisition to be completed in the second quarter 2015.
The port operator’s shares closed on Thursday up 2.65 per cent to $20.15 on the Nasdaq Dubai.
