Dubai-based port operator DP World, which had planned to invest $12 bn in Indian container terminal industry, may struggle to do so because of the travails of its parent, Dubai World, the heavily indebted holding company of the Dubai government.

Although Dubai World has said its debt restructuring process does not
include DP World, Moody’s Investor Service has downgraded the debt
ratings of the port operator as it believes that the restructuring of
the parent company’s liabilities will have an adverse impact on the
subsidiary.

DP World — the world’s fourth-largest port operator — operates
container terminals in Nhava Sheva, Chennai, Mundra, Vishakhapatnam and
Kochi, and is setting up terminals in Kulpi and Vallarpadam. The
company has invested over $2 billion, the highest by any GCC firm in
India, and had said it would spend $12 billion more in the next five
years. DP World handled 4 million TEUs (20-foot equivalent container
units) in India in 2006, up from 2.5 million in 2005, according to a
CLSA report. DP World acquired the terminals at Mundra, JNPT and
Chennai by taking over P&O in 2006.

DP World India chief Anil Singh said the company has nothing more to
add to the Dubai government’ earlier statement. An executive of a
domestic logistics company, who did not wish to be named, said Dubai
World may be forced to dip into the reserve of DP World to pay off its
creditors, if the situation so demands. In that case, DP World may
postpone its investments in some countries, including India. Dubai
World, which owns 77% of DP World, has almost $60 billion in
liabilities.

DP World, which operates 45 terminals in 29 countries, has a debt of
$4.7 billion (June 2009) and a cash balance of $3 billion. The net
profit for the first six months of 2009 were $188 million. The Dubai
government announced on Wednesday that it needed a six-month moratorium
on the debt owned by Dubai World, its flagship holding company.

Another executive of a shipping company said the crisis in Dubai would
have no impact on the Indian container terminal industry.

“DP World’ aggressive investment plan in India may slow down. But
Indian logistics companies, who are active in Dubai, will not be
impacted. This is because Dubai is largely a transhipment hub. It
consumes only 10% of the total containers it receives and sends the
remaining 90% to various destinations — from India to Africa.”

In London, DP World’s credit swap ratio, or CDS — an insurance against
a possible default on loans — rose to 818.5 basis points from
Thursday’s close of 608.6 basis points, indicating investors are
demanding more to insure loans of the port operator as they think its
parent company’s proposed debt restructuring may impact its financing
abilities.

Source: Economic Times India

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