DP World yields at record low on rating upgrade

The yield on DP World Ltd’s Islamic bond dropped to a record low after Moody’s Investors Service raised the ratings on the Dubai government-controlled ports operator to investment grade, attracting investors.

The rate on the $1.5bn sukuk due July 2017 fell 47 basis points last week, or 0.47 percentage point, to 5.78 percent on April 15. The yield on Dubai's 6.396 percent sukuk due November 2014 dropped to an all time low of 5.15 percent on April 13 and retreated 40 basis points since Dubai World, the state-owned holding company, signed a final accord last month altering the terms on about $25bn of debt, easing concern the emirate may default.

The ratings upgrade widened the pool of investors for DP World’s sukuk because some funds were limited to buying investment grade securities, according to Mashreq Capital and Rasmala Investment Bank Ltd. Confidence in Dubai’s enterprises is improving as government-related companies complete debt restructurings and economic growth accelerates.

“We wanted to buy it, but the rating agencies were slow in upgrading it,” said Zeid Ayer, who helps oversee $1.6bn of Sharia-compliant assets at Kuala Lumpur-based CIMB-Principal Islamic Asset Management Bhd, a unit of CIMB Group Holdings Bhd, the top sukuk underwriter last year. “It’s a strong business, they’ve posted good results recently and it’s a well- diversified business.”

DP World’s long-term foreign currency and local currency debt ratings, which affect $3.25bn of borrowings, were lifted one level to Baa3, the lowest investment grade, from Ba1 by Moody’s on April 11. The outlook is stable. Fitch Ratings assigned the company a long-term issuer default rating of BBB-, the lowest investment ranking, on March 23.

The ratings “are sustained by the company’s diversified global operations, the expected growth in international container traffic as well as solid profitability and a strong liquidity profile,” Franck Nowak, associate analyst at Moody’s in Dubai, wrote in the statement.

DP World had its debt rating slashed to below investment grade in December 2009 by Moody’s, which also downgraded five other companies controlled by Dubai’s government on concern the emirate won’t increase support for state-owned companies. Dubai World roiled global financial markets in November 2009 after it sought to delay repayment on its debt.