Wednesday 20, September 2017 by Georgina Enzer

Acquisition of Drydocks World and Maritime World is credit positive

On 18 September 2017, DP World Limited (DPW, Baa2 stable) announced that it has agreed to acquire Drydocks World LLC (Drydocks) for $225 million via a capital injection and Maritime World LLC for $180 million.

Both entities are related parties to DPW given the common ownership under state-owned conglomerate Dubai World. The acquisition slightly increases pro forma net leverage by 0.3x, and incrementally increases DPW's investment exposure to Dubai. However, the acquisitions are credit positive overall because they will enable DPW to develop additional recurring revenue streams and provide a valuable opportunity to implement its strategy to grow across the trade and logistics supply chain.

DPW is likely to achieve some cost synergies, given its large operational scale, but more importantly has the financial flexibility and global footprint to invest into these two businesses and attract new customers. We understand that Drydocks is a commercially viable business but one that has been burdened by legacy debt raised during its foray into international markets in 2007.

DPW's acquisition is contingent upon the successful restructuring of $2.1 billion of debt, which will be reduced to $638 million after a haircut to existing creditors. The news is also a positive step for Dubai, bringing about further consolidation in state-owned enterprises and strengthening the Emirate's position as a hub for trade and logistics. The acquisition of Drydocks will allow DPW to grow its ancillary maritime business and also follows the company's announcement in June 2017 that it had agreed to acquire Remolques y Servicios Maritimos, S.L. (Reyser), a maritime services company with operations primarily in Spain.

The customers at Drydocks overlap with that of DPW's, providing the latter with an opportunity to strengthen relationships with its customers and provide additional maritime services, such as vessel repairs. Maritime World wholly owns Dubai Maritime City (DMC), a 2.3 million square metre commercial and industrial zone adjacent to Drydocks and Port Rashid. We consider DMC to be a valuable piece of real estate if developed to its full potential given its prime location at the heart of Dubai.

Through its wholly-owned Jebel Ali Free Zone FZE (JAFZ, Baa2 stable) subsidiary, DPW will be able to leverage its industrial and commercial asset management expertise to develop this freehold area. As an example, DMC can be an attractive location for suppliers, intermediaries, and service providers to the shipping industry. According to DPW, there are existing commercial and warehouse assets in DMC which are not fully occupied, but the area could require $50 million-$100 million of investments annually over the next several years if customer demand grows significantly.

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