DP World sells 75% of Australian operations to cut debt

Dubai-based ports operator DP World moved to cut its debts with the sale of 75% of its Australian operations to private equity firm Citi Infrastructure Investors (CII) for $1.5 billion. 

DP World -- considered one of the more profitable units of debt-laden Dubai World -- said on Wednesday it will keep 25% of DP World Australia and will also retain earnings by continuing to manage the operations.  

DP World chief executive Mohammed Sharaf said all the proceeds will go to the company, which is keen to reduce its net debt, and he had no plans to sell other assets.    

"This wasn't done because we went in the market looking for partners, they approached us," he said on a conference call.                                           

"This is part of our strategy of continued growth in emerging markets without increasing overall leverage in our business."  

The deal with CII, Citi's infrastructure fund, values DP World Australia at $1.82 billion.                                           

DP World shares rose 3.2% on Nasdaq Dubai, hitting a two-year high.

The firm had considered an initial public offering for the Australian business but opted for a strategic investor because the valuations were better, chief financial officer Yuvraj Narayan said. 

"It's going to be accretive," he said of the deal, which is slated to close towards the end of the first quarter in 2011.                                          

"What we lose in EBITDA, we will get back as a result of management fees as well as our reduction in net interest costs. We see this as a good transaction."

The ports operator, which was excluded from parent company Dubai World's massive debt restructuring, had $8.04 billion in outstanding debt at the end of June 2010, according to a bond prospectus it updated in November.   

It plans to seek a dual listing in London early next year.                                           

"The fact it has been able to sell assets in the current environment should be seen as a positive," said Shehzad Janab, chief investment officer at Daman Investments.

"DP World is making money and is a play on regional and global growth and I would expect it to continue to be ring-fenced from Dubai assets sales until prices improve and I don't see that happening any time soon."                                           

DP World Australia operates container terminals in Brisbane, Sydney, Melbourne, Adelaide and Fremantle, with capacity of about 3.5 million TEU per year.

DP World's duopoly in Australia ended after the Queensland and New South Wales governments separately expanded their ports and allowed the entry of Hong Kong-controlled Hutchison Ports as a third force along with DP and Asciano Ltd.

DP World was advised by Deutsche Bank and Citigroup Global Markets while HSBC and UBS advised CII.                                           

"The company has been mulling this over for while - in December 2008 it parcelled off its Australian assets from the local unit to the wider DP World group, which showed it was getting ready for either a trade sale or an IPO," Janab said.