Dubai takes port operator private to tackle impending debt wall

Dubai plans to delist its port operator to help repay more than $5 billion of government-related debt.

As part of DP World Ltd.’s delisting, its parent -- Port and Free Zone World -- will pay Dubai World $5.15 billion to help it repay outstanding commitments to banks. The conglomerate has about $9.9 billion in debt maturing in 2022 and a further $1.1 billion due in 2026, according to data compiled by Bloomberg.

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The plans come as Dubai faces the prospect of restructuring a chunk of $23 billion in loans to government-related companies maturing at the end of 2021 for a second time, according to Fitch Ratings Ltd. The emirate has enlisted the help of two of its most trusted officials to steer key companies through a drawn-out slowdown, after they pulled the business hub back from the brink of default more than a decade ago.

Read: Veterans of Dubai’s Near-Default Have a New Mission 10 Years On

Dubai is set to endure another year of lower property prices, weak demand and a retail sector that’s struggling. The ongoing slump is a stark reminder of the 2009 global financial crisis when Dubai World restructured $23.5 billion of debt and property developer Nakheel PJSC had $10.5 billion of unpaid bills. Many of the city’s hopes rest on hosting the World Expo 2020 exhibition later this year, which is expected to spur economic growth to about 3.2 percent, after expanding just 2.1 percent in 2019.

Dubai said on Monday it will pay a 29 percent premium to acquire the 19.55 percent of DP World that’s listed on Nasdaq Dubai and return the port operator to private ownership. The company is seeking to transform to an infrastructure-led logistics provider and the deal will help it “implement its strategy without any restrictions from Dubai World’s creditors,” it said.

As part of the deal:

DP World will borrow $8.1 billion in addition to its existing debt.

Port and Free Zone World expects an investment grade rating for DP World from Fitch and Moody’s Investors Service Inc. after the deal.

DP World may tap global debt markets, including capital markets in “due course with a view to refinancing elements of the acquisition debt with longer-term maturities.”

Offer is expected to be completed in the third quarter.

DP World’s parent will pay about $2.72 billion for DP World’s outstanding shares: Bloomberg calculations.

DP World advanced as much as 10 percent to trade at $14.30 in Dubai on Monday. It’s still down about 47 percent from a recent peak in January 2018.