STATUS OF DP WORLD IN THE CURRENT ECONOMY

C O N F I D E N T I A L SECTION 01 OF 02 DUBAI 000275 SIPDIS DEPARTMENT FOR NEA/FO; NEA/ARP/BMASILKO E.O. 12958: DECL: 7/7/2019 TAGS: ETRD EFIN ECON PREL AE SUBJECT: STATUS OF DP WORLD IN THE CURRENT ECONOMY REF: DJIBOUTI 107 DUBAI 00000275 001.2 OF 002 CLASSIFIED BY: Jennifer Gavito, Acting Principal Officer, Consulate General Dubai, UAE. REASON: 1.4 (b),(d) ¶1. (C) Summary: Like most multinational companies, Dubai Ports World (DP World) has not been immune to the current financial crisis. While some business plans are unchanged, DP World has revised other plans based on declining demand and trade volumes at Dubai's mammoth Jebel Ali port and abroad. In late June, DP World announced Jebel Ali's USD 1.5 billion Terminal 3 will not come on line until the demand for the extra capacity is needed; Jebel Ali's container volumes have fallen ten percent in the past year. However, DP World opened two ports in Algeria and one in Djibouti because African trade volumes are stronger than those through Dubai or Europe. End Summary. -------------- Construction of Terminal 3 Halted -------------- ¶2. (C) In late June 2009, DP World announced it will cease work on Jebel Ali's Terminal 3 because of the lack of demand, low trade volume, and spare capacity at the port. Senior Vice President of Government Relations Suhail Al Banna told Poloff on July 1 that the expansion of Jebel Ali is driven by demand and that trade volume for containers is down ten percent from its peak in July 2008. The current trade volume equals 2006 levels, and DP World anticipates it will take three years or more to regain volumes that would justify the building of Terminal 3. (Note: Press reports that Jebel Ali had an annual rate of 10.8 twenty-foot equivalent units (TEUs) between January and April ¶2009. End Note) Al Banna also said that the decision to halt construction of Terminal 3 was not related to lack of financing, rather, DP World will not build Terminal 3 until there is a clear demand for it. -------------- Current Trade Volumes -------------- ¶3. (C) Al Banna told us on May 25 that Jebel Ali container traffic is evenly split between local trade and transshipments. As a result of the global downturn, bulk cargo decreased 60 to 80 percent in the past year. Trade volumes for construction materials such as steel and wood have "crashed," according to Al Banna. Trade volumes for DP World's ports in Europe have been down 20 to 33 percent; however, DP World has not seen much change in the trade volume in Africa. This year, DP World opened two ports in Algeria and one in Djibouti (reftel). Al Banna said DP World plans to open a port in September and another port early next year (NFI). -------------- Credit Impacts Jebel Ali and Jafza Companies -------------- ¶4. (C) Al Banna explained that banks are not releasing containers until receiving companies pay in full for letters of credit. Today, most companies lack cash because they historically depend on credit. It has been a vicious cycle for the companies in the Jebel Ali Free Zone (Jafza),as DP Word continues to charge for storage even as the banks refuse to release the containers. As a way to help the companies, DP World has extended the length of time it will store containers on the port to some companies with whom it has a long-term relationship. -------------- Credit Downgrade DUBAI 00000275 002.2 OF 002 -------------- ¶5. (U) Liquidity concerns are also impacting DP World as Standard and Poor's (S&P) downgraded DP World's rating by two levels to BBB+/Negative/A-2 from A/Watch Negative/A-1 on June ¶30. (Note: A BBB+ is two levels above the lowest investment grade rating. End note.) S&P revised ratings on several Dubai Inc. companies that had been on CreditWatch with a "negative" outlook since April 30 because of the increased uncertainty of the Dubai Government's support after it reportedly allowed Nakheel to start talks of restructuring to refinance its USD 3.5 billion Islamic bond due in December. COMMENT -------------- ¶6. (C) Often considered a "national champion" for Dubai, and one of the few profitable Dubai Inc. firms today, DP World has also been forced to scale back its ambitions. However, the well established firm used the boom years to develop expertise and an international brand. Despite the current slowdown, most observers agree that DP World will remain a global shipping force. GAVITO