Caisse to invest US$5B in Dubai port operator

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Dubai is selling stakes in some of its most prized assets, including the port that helped transform the city into a global trade hub, to a Canadian fund as the emirate seeks to alleviate its debt burden. 

Caisse de Depot et Placement du Quebec agreed to invest US$5 billion in the Middle East’s biggest port and two industrial zones, according to a statement Monday. Other long-term investors will have the opportunity to acquire additional stakes for as much as US$3 billion by the end of the year. 

Under the agreement, the Montreal-based pension manager will invest US$2.5 billion in the Jebel Ali Port, Jebel Ali Free Zone and National Industries Park. It’s doing the deal through a new joint venture in which it will hold a stake of about 22 per cent, with the remainder of the transaction being financed by debt. 

The transaction values the assets, which are controlled by state-owned DP World, at about US$23 billion including debt. It builds on an existing venture between DP World and CDPQ formed in 2016 to invest in ports around the world. 

HIGH GROWTH

“The familiarity with the management team helped us in doing this transaction,” Emmanuel Jaclot, head of CDPQ’s infrastructure business, said in an interview Monday. “The zone of Middle East, Africa and South Asia is in a different growth trajectory, and this deal helps us to diversify our exposure to this high-growth region.”

CDPQ has committed financing for the US$2.5 billion of debt it’s putting into the deal, he said. The second tranche of US$3 billion is also likely to be equally split between equity and debt, Jaclot said. 

The fund is keen to further grow its infrastructure portfolio, which has doubled in the last three and half years, and transportation is a key focus area, according to Jaclot. 

DP World has been exploring the sale of equity stakes in certain assets as the emirate works to reduce the debt pile that helped finance the city’s growth. Dubai took DP World private in early 2020 to help the company better manage its borrowings. 

CUTTING DEBT

The deal “achieves our objective of reducing DP World’s net leverage” to below four-times net debt to earnings before interest, taxes, depreciation, and amortization, Chief Executive Officer Sultan Ahmed Bin Sulayem said in the statement. “We believe this new partnership will enhance our assets and allow us to capture the significant growth potential of the wider region.”

With the investment, DP World “may be on track for an upgrade to BBB at Fitch as it could deleverage to below 5x net debt-to-Ebitda,” said Sharon Chen, a credit analyst at Bloomberg Intelligence. “Its balance sheet may strengthen” and the deal “may help repay US$7 billion of debt due 2023.”