the Company Port and Free Zone World will buy nearly 20% stake in subsidiary DP World Ltd, one of the largest port operators in the world, on the NASDAQ Dubai. After the share repurchase the company DP World is wholly owned by the government of Dubai. In addition, it will help the investment company of the Emirate of Dubai World to repay loans.
obviously, it’s the latest sign that oil-rich countries in the middle East are trying to strengthen budgets and finances after the fall in oil prices in 2014.
“In the context of the planned delisting of DP World, Dubai World need to $5.15 billion from PFZW to fulfill obligations to creditors of commercial banks, and that DP World can implement its strategy without restrictions by creditors of Dubai World,” said DP World on Monday.
In the short term debt of DP World will continue to grow. In the short term, the company will have to assume a lot of debt in the transaction that caused the rating agencies Moody’s and Fitch to review the ratings of DP World in the direction of the sink.
“This transaction will weaken the overall credit profile of DP World,” said Dion Beit, Vice President of Moody’s.
According to Fitch, DP World’s fifth largest port operator in the world by gross throughput, acting directly or through joint ventures. In its portfolio more than 150 operations in over 45 countries. The deal is being implemented against the backdrop of slowing economic growth in Dubai.
the Planned elimination of DP World exchange happened at a time when economic growth in Dubai has slowed down after the fall in oil prices in 2014. In 2018, the Dubai economy grew by 1.9% compared with growth of 3.1% in 2017.
“the Slowdown may be caused by a combination of external factors, such as the trade war between China and the United States, economic instability among neighboring countries and internal problems, such as the introduction of VAT in UAE,” said the Dubai government, Dubai Economic Report 2019.
Despite the recovery in oil prices in 2018, the economic growth of Dubai is not accelerated. At the beginning of 2019 of the company in Dubai obviously did not feel optimistic about a significant recovery of economic growth.
the Economy of Dubai is not directly dependent on oil, which is not true about the economy of Abu Dhabi, another famous and important Emirate in the UAE.
for Many years the income of Dubai depended on the sector of real estate, tourism, logistics and financial services, not from oil, which is not so much in Dubai as in Abu Dhabi.
Dubai is not as insulated from oil prices as it seems. However, as a financial, logistics and tourist destination in the region, Dubai economy indirectly bears the loss when the petrodollars in the middle East becomes less and when the governments of the Gulf countries impose taxes reducing consumer spending to correct the situation after the fall of oil prices. Frequent geopolitical flash in the region affect the sentiment of investors and consumers, strengthen global trends, constraining economic growth of Dubai, despite the fact that direct revenues from oil are not the main source of income for the Emirate.
During the global financial crisis of 2008-2009 and oil-rich Abu Dhabi came to the aid of the state investment firm Dubai World to help it pay off debts. This kind of intergovernmental bale-out said that a diversified economy, focused on services, such as in Dubai, needed the petrodollars of oil-rich Abu Dhabi. This helped to prevent default on the debt of several public companies during the financial crisis.
the Treasury of the different countries in the middle East need to increase non-oil revenues.
But if the UAE and its neighbours in the Persian Gulf has satisfied the peak demand for oil in the world, without prejudice, they would need deeper and more immediate reforms in the economy, sourcex’s income and their expenses to preserve financial health in the next 20 years, said the IMF.
At the current pace of reforms, income and expenses, the combined wealth of the 6 oil producing countries of the cooperation Council of Gulf countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE) to $2 trillion will be destroyed by 2034, if they will not accelerate fiscal reform and will not expand their non-oil revenues and non-oil share in their countries, said the IMF.
Dubai is a bright example of a diversified economy in the heart of the Middle East rich with oil. But when you suffer neighbouring countries that depend on oil, growth in Dubai is slowing. The region depends and will depend on oil, and with fluctuations in oil prices the middle East is dependent on oil, will try to improve the balance of public budgets.