DP World acquires Jebel Ali free zones for $2.6bn, delists from London

DP World announced yesterday it is to acquire Jebel Ali Port’s free zones business from its parent and delist from the London Stock Exchange after trading in its stock was flat over the last three years.

The company said it will acquire Economic Zones World FZE (EZW) from Port and Free Zone World FZE (PFZW) for $2.6bn, as well as assuming $860m of EZW debt. EZW provides industrial and logistics infrastructure through five business units: Jebel Ali Free Zone FZE (JAFZ), JAFZA Enterprises FZE, EZW Corporate, Business Center World FZE, and Emerging Business Units.

PFZW is owned by Dubai government conglomerate Dubai World.

JAFZ, EZW’s primary business unit representing 97% of revenue and operating profit for FY2013, is a 57 sq km commercial and industrial logistics park adjacent to Jebel Ali port in Dubai. The free zone is an important supply-chain component for DP World’s customers at the port. JAFZ is run by Jebel Ali Free Zone Authority (JAFZA).

“JAFZA is EZW’s principal business. JAFZA was the first free zone in the UAE and a key driver of UAE [economic] growth,” said Sultan bin Sulayem, chairman of DP World, implying a strong strategic rationale behind the deal. “Combining the two businesses makes sense, especially to our customers. It is a unique opportunity to but our two businesses back together.”

DP World said it wanted to guard against the potential conflict of interest that could arise in the unlikely event of a third party acquiring ownership of JAFZ, and to coordinate planned expansion between the two entities. Ceo Mohammed Sharaf said the potential existed to double capacity at Jebel Ali Port, likely to be 19m teu by early 2015, in line with market demand.

DP World CFO, Yuvraj Narayan said the acquisition of EZW would see a 7% return on common equity in the first full year of results following completion of the deal, expected in 2015 Q2. He said DP World’s EBITDA margin was 78% or better in the three years to end-2013 and 2014H1, while estimating pro forma combined EBITDA for DP World and EZW of 50%, or $1,763m in 2013.

The delisting comes in the wake of the failure of DP World’s stock to trade in volume on the LSE, achieving levels of no more than 2-3% at peak. It also comes in the wake of the reclassification by global index provider MSCI of the MSCI UAE index from frontier to emerging market in May.

“As at 30 September 2014, approximately 99% of DP World’s shares were held by individuals and institutions investing through the NASDAQ Dubai listing, with less than 1% being held in depository interest form through the LSE,” said a DP World press release issued today.

DP World shares have been listed on the NASDAQ Dubai since 2007, while in June 2011, the company’s shares were dual-listed on the LSE. However, the experiment, designed to assist institutional investors whose mandates prevented them from acquiring the company’s equity in Dubai, proved largely unsuccessful. DP World also said that today, most international investors can access the stock via Dubai.

Together with the port, JAFZ generates 20% of Dubai’s GDP, and this is only expected to increase as international businesses based there take advantage of the developing sea-air logistics corridor with Al Maktoum International Airport at Dubai World Central.

Some 62% of JAFZ’s portfolio value is attributable to land, 14% to warehouse, 14% to office space and 7% to residential accommodation, as valued by a Knight, Frank Property Valuation Report

Dubai expects double-digit growth in its non-oil economy from now to 2020.

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