Dubai government to buy back shares in DP World

The impending delisting of DP World from Nasdaq Dubai is not the company’s first exit from a stock exchange.
Sunday 08/03/2020
Terminal tractors line up at DP World’s Terminal 2 at Jebel Ali Port in Dubai. (Reuters)
Market leader. Terminal tractors line up at DP World’s Terminal 2 at Jebel Ali Port in Dubai. (Reuters)

The debt-burdened government of Dubai is making the unusual move to regain full ownership of partially privatised state firm DP World, buying back public shares and delisting the company from its local stock exchange.

In doing so, Dubai is bucking the trend in the region of governments selling stakes in profitable state entities to the public to raise cash and strengthen and diversify their capital markets.

DP World, the world’s fourth-largest port operator with a network of 91 marine and inland cargo terminals, announced February 17 that its parent company, state-owned Port and Free Zone World (PFZW) was offering to purchase the 19.55% of DP World’s shares listed on Nasdaq Dubai for $16.75 a share. That share price is a 29% premium over the closing price of $13 a share from the previous day.

The cost of PFZW buying those outstanding shares is estimated at $2.72 billion. The cash offer is expected to be completed in the third quarter of this year and requires shareholder and regulatory approvals.

This step will make DP World entirely state-owned, some 12 years after the port operator raised $5 billion in an initial public offering and floated 3.8 billion shares on the Dubai International Financial Exchange, the predecessor to Nasdaq Dubai.

DP World explained that the demands of the equity markets for short-term gains increasingly ran counter to the company’s medium- and long-term goals, resulting in its return to private ownership and delisting on Nasdaq Dubai. DP World said its board determined that “the disadvantages of maintaining a public listing outweigh the benefits” and that delisting was in “the best interest of the company.”

PFZW is 100% owned by Dubai World, one of the Dubai government’s state investment vehicles that focuses on transport and logistics, dry docks and maritime, urban development and financial services.

DP World said: “In the context of the planned delisting of DP World, a payment of $5.15 billion is required from PFZW to Dubai World to assist Dubai World in discharging its outstanding obligations to its commercial bank lenders, so that DP World can implement its strategy without any restrictions from Dubai World’s creditors.”

The government of Dubai is raising $9 billion to take back full control of DP World and help refinance existing debt owed by Dubai World. Citibank and Deutsche Bank have underwritten that amount, which includes the $2.7 billion for the share purchases, the $5.15 billion dividend payment to Dubai World and Dubai World’s additional debt refinancing, and are working with other banks to redistribute that debt.

Dubai World was at the heart of the Dubai government’s 2009 financial crisis, with the state investment arm unable to make debt repayments to creditors on time. The government of Abu Dhabi provided Dubai with $25 billion in bailout funding to help the smaller emirate stay afloat financially and Dubai World signed a $25 billion debt restructuring agreement in 2011. The state investment conglomerate reportedly has around $9.9 billion in debt maturing in 2022 and another $1.1 billion due in 2026.

The Dubai government has a debt of $124 billion. Approximately $23 billion in loans to government-related entities due to mature by the end of 2021 is expected to be restructured a second time. Dubai’s economy is hurting from a prolonged real estate downturn, with property prices at their lowest levels in a decade, as well as a struggling retail market. With marginal oil earnings, Dubai has focused on deriving its revenues from high-end real estate, tourism, logistics and financial services.

The Gulf emirate’s economy grew 2.1% in 2019. The government has great expectations that economic growth will rise to 3.2% this year, because of its Expo 2020 world fair, which kicks off in October and runs through April 2021. An estimated 11 million visitors are anticipated to flock to the emirate for the fair, giving a welcome shot in the arm to Dubai’s tourism, real estate and retail sectors.

The impending delisting of DP World from Nasdaq Dubai is not the company’s first exit from a stock exchange. The firm began floating shares on the London Stock Exchange (LSE) in June 2011 but weak trading volumes prompted DP World to delist shares from the London index in early 2015.

The effect of DP World delisting on Nasdaq Dubai will have a far greater effect on the Dubai bourse than it had on the LSE. The United Arab Emirates’ seventh-largest firm by market value, DP World is the largest of only eight equity listings on Nasdaq Dubai.

The loss of Nasdaq Dubai’s most valuable stock and potentially another equity listing, ENBD Real Estate Investment Trust, will be a serious blow to the bourse in terms of its liquidity.

The two other larger UAE exchanges — the Abu Dhabi Securities Exchange and the Dubai Financial Market — each have more than 70 listed companies.

To boost liquidity and diversity on the two more prominent exchanges, the UAE government introduced a draft law facilitating the listing of family-owned businesses on those bourses.