Dubai Debt Problems May Effect Logistics Sector
by Thomas Cullen.
- / N2N / – The news of what appears to be an effective default on the debts of Dubai World has shocked the financial markets. It may also have a big impact on the logistics sector. Dubai World is the state holding company that owns, amongst its large portfolio of assets, Dubai Ports World and the warehousing property developer, Gazeley.
The situation of Dubai World is serious, yet its problems are largely driven by its property development business. Its logistics businesses are generally sound and this is reflected in the Dubai government’s assertion that Dubai Ports World is not subject to the ‘debt -delay’ of the wider Dubai World group, stating that, “DP Ports World and its debt are not included in the restructuring process for Dubai World.”
The problem with such a position is that the Dubai World creditors will want their money back at some stage and the logistics business of Dubai World are valuable and marketable assets. The Dubai government may not wish to sell, seeking to separate the good businesses from the bad. However they may not have any choice if they want to pay off their debts.
So how much are DP World and Gazeley worth? Dubai Ports World’s debt is large, at US$4.7bn (June 2009) but stable, with cash balance of over US$3bn. EBITDA margins remain huge at 38%, whilst net profit from continuing operations for the first six months of 2009 were US$188m. Revenue fell on a year-on-year basis by 13% to US$1.3bn. This robust performance reflects a portfolio of port assets strongly exposed to the Middle East and regions such as India which have not suffered as badly from the fall in world trade. The container shipping trade may be suffering, but container terminals business remains viable. Whether its future prospects justify the large prices paid for assets such as P&O Ports, which DP World bought in 2006, is another question.
Gazeley is harder to understand. Bought for an undisclosed sum thought to be in excess of £300m (€360m/$585, 2008 prices) from WalMart in 2008, it is wholly owned by Dubai World and therefore financial information is lacking. It is likely to have suffered in the recession although perhaps not as badly as its highly leveraged competitors such as ProLogis.
These are attractive businesses to many. Other Gulf countries are possible buyers of either company as are Chinese investors. Pension funds in Western nations have also invested in such assets over the past few years. The key question will, of course, be price. However with container port volumes down by as much as 20% in some regions the prices are unlikely to be quite as generous as the years before the crash.
Source = TI Logistics Briefing
