DPW net up 35%; 2011 starts well
Fitch Ratings has assigned DP World a "BBB-" rating with stable outlook, reflecting its strong position as one of the largest global container terminal port operators, with a geographically diversified portfolio of assets in high growth markets.
The ratings agency also awarded its $5 billion GMTN programme a senior unsecured rating of 'BBB-'.
Additional factors supporting the company's ratings include its strong liquidity position, a record of sustained operating cash flow generation and an experienced management team.
These strengths mitigate the company's high leverage, industry cyclicality with a high correlation to macroeconomic developments, and concentration of earnings in Dubai's Jebel Ali port, which accounted for almost 40 per cent of the group's total throughput in 2010.
Fitch recognises though that Dubai's port represents a sizeable and reliable business base, given its gateway position in the Middle East and the fact that it currently generates high margins.
"Following an overall 10 per cent drop in global container trading volumes in 2009, container trade has recovered notably since then and the sector outlook fundamentals are positive," said Apostolos Bantis, an Associate Director in Fitch's Corporates team in London.
"DP World's 2010 results demonstrate a significant recovery with like-for-like consolidated throughput up by nine per cent, while the company's EBITDA margin of approximately 40 per cent has now recovered to close to pre-crisis levels.
"Furthermore, the recent sale of its Australian assets is a positive credit factor and will have an accretive impact on the group's EBITDA margins."
Fitch expects container trading volumes to improve, driven by the export-led growth in the emerging economies, but at a slower pace than in the past few years. This should benefit DP World given its bias towards emerging markets which account for around 75 per cent of its trading volumes.
DP World has a record of aggressive acquisitions and large capital investment expansion projects. However, during the last downturn DP World's management reduced the amount of expansionary projects and began several cost cutting initiatives that helped to minimise the impact of declining profitability, thus supporting cash preservation.
Leverage remains high with lease adjusted net debt to EBITDAR at around 5.0x as of year-end 2010. However, Fitch anticipates that this metric will gradually decline to 4.5x as profitability improves. DP World's debt primarily consists of senior unsecured borrowings under the company's GMTN programme, a $1.5bn Sukuk and a $3bn revolving credit facility along with a smaller amount of senior secured credit facilities.
Fitch also expects that the company will reduce its gross leverage through the application of a sizeable proportion of the group's cash balances, to pay down the $3bn revolving facility due in 2012.
The stable outlook reflects Fitch's expectation that over the near to medium term, DP World will maintain a moderate financial policy despite its aggressive expansion record. In addition, the company's solid domestic position and high exposure to emerging markets reflected in its above-average margins, is likely to remain largely unchanged over the medium term.
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