CDPQ's Huge Investment in UAE's Jebel Ali Port
The Caisse de depot et placement du Québec is buying a minority stake in three DP World assets in the United Arab Emirates for US$5 billion.
The Quebec pension fund manager will invest US$2.5 billion in Jebel Ali Port, Jebel Ali Free Zone and National Industrial Park through a new joint venture in which it will hold a stake of around 22 per cent. It will finance the rest of the deal with debt.
Other long-term investors will have the opportunity to also acquire a stake of up to US$3 billion.
In a news release, the Caisse says the transaction implies a total enterprise value of about US$23 billion for the three assets.
The port of Jebel Ali is touted as the second largest outside of Asia, located to serve the trade corridor linking West and East through its connections to 150 cities around the world. The Jebel Ali Free Zone is the largest in the Middle East, with companies from 140 countries, including 150 Fortune businesses.
DP World chairman and CEO Sultan Ahmed Bin Sulayem says the transaction reduces its leverage amid the pandemic and recent global economic conditions.
“Today, we are pleased to deepen our long-standing relationship with a world-class logistics and supply chain operator by investing in this strategic trade infrastructure, one that will play a pivotal role in the evolution of the global economy,” adds Emmanuel Jaclot, head of infrastructure at the Caisse.
The partnership with DP World involves 18 terminals in four continents.
The first tranche of the transaction, for US$5 billion, is expected to close in the second or third quarter of 2022, and the closing of the second tranche, up to US$3 billion, is expected to occur in the fourth quarter of 2022.
Mathew Shaji of Bloomberg News also reports Caisse de Depot to invest US$5B in Dubai port operator:
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.”
CDPQ put out a press release on this deal earlier today:
DP World, a global infrastructure-led supply chain solutions provider, and CDPQ, a global investment group, announced today an investment of US$5 billion (CA$6.3 billion) in three of DP World’s flagship UAE assets.
CDPQ will invest US$2.5 billion in the Jebel Ali Port, the Jebel Ali Free Zone and the National Industries Park through a new joint venture in which it will hold a stake of approximately 22%2, with the remainder of the transaction being financed by debt. Other long-term investors will have the opportunity to acquire an additional stake of up to US$3 billion. The transaction implies a total enterprise value of approximately US$23 billion for the three assets.
The Jebel Ali Port, Free Zone and National Industries Park together comprise a best-in-class group of infrastructure with a solid long-term track record of growth. Combined, they form a world-class integrated ecosystem for the supply and logistics chains of over 8,700 companies from around the world, serving more than 3.5 billion people globally. The three assets generated pro-forma 2021 revenue of US$1.9 billion.
- Jebel Ali Port (JAP) – A leading international gateway port and the second largest outside of Asia, ideally located to serve the East-West trade corridor through its connectivity to 150 cities globally via 180+ shipping lanes.
- Jebel Ali Free Zone (JAFZ) – The largest free zone in the Middle East and one of the largest in the world. It is home to companies from 140 countries, including approximately 150 Fortune 500 enterprises.
- National Industries Park (NIP) – A 21 sq. km area designated for manufacturing and processing companies.
The three assets will remain fully consolidated businesses within the DP World Group and day-to-day operations, customers, service providers and employees will not be affected.
Sultan Ahmed Bin Sulayem, Group Chairman and CEO, DP World, said: “We are delighted to announce the broadening of our partnership with CDPQ. The DP World and CDPQ co-investments have been very successful thanks to our complementary expertise and long-term investment horizon. We believe this new partnership will enhance our assets and allow us to capture the significant growth potential of the wider region. The transaction3 also achieves our objective of reducing DP World’s net leverage to below 4x Net Debt to EBITDA and this has been achieved despite the challenges of the pandemic and recent global economic conditions. The significant strengthening of our balance sheet, the continued resilience of our business, diversity in our portfolio and continued focus on supply chain solutions will support our target of achieving a strong investment-grade rating for the Group. Overall, we believe this transaction provides a strong platform for the UAE assets to meet their long-term growth objectives, while the stronger balance sheet supports the Group’s wider end-to-end supply chain solution strategy, which will drive sustainable value for all DP World stakeholders.”
Emmanuel Jaclot, Executive Vice-President and Head of Infrastructure at CDPQ, said: “This investment in Jebel Ali is another great illustration of the partnership between CDPQ and DP World, which now spans four continents and eighteen terminals. Today, we are pleased to deepen our long-standing relationship with a world-class logistics and supply chain operator by investing in this strategic trade infrastructure, one that will play a pivotal role in the evolution of the global economy. DP World is well positioned to provide innovative solutions to their customers worldwide, and we welcome this opportunity to invest in a best-in-class group of infrastructure that provides CDPQ with exposure to new fast-growing markets and trade routes in Africa and South Asia.”
Tranche 1 (US$5 billion) of the transaction is expected to close in the second or third quarter of 2022, and tranche 2 (up to US$3 billion) is expected to close during the fourth quarter of 2022.
1 Enterprise Value
2 Through a sub-concession of up to 35 years
3 Pro-forma upon closing and Pre IFRS 16.About DP World
We are a leading provider of worldwide smart end-to-end supply chain logistics, enabling the flow of trade across the globe. Our comprehensive range of products and services covers every link of the supply chain – from maritime and inland terminals to marine services and industrial parks as well as technology-driven customer solutions.
We deliver these services through an interconnected global network of 295 business units in 78 countries across six continents, with a significant presence both in high-growth and mature markets. Wherever we operate, we integrate sustainability and responsible corporate citizenship into our activities, striving for a positive contribution to the economies and communities where we live and work.
Our dedicated, diverse, and professional team of more than 97,500 individuals from 158 countries are committed to delivering unrivalled value to our customers and partners. We do this by focusing on mutually beneficial relationships—with governments, shippers, traders, and other stakeholders along the global supply chain—relationships built on a foundation of mutual trust and enduring partnership.
We think ahead, anticipate change, and deploy industry-leading digital technology to further broaden our vision to disrupt world trade and create smart, efficient, and innovative solutions, while ensuring a positive and sustainable impact on economies, societies and our planet.
About CDPQ
At CDPQ, we invest constructively to generate sustainable returns over the long term. As a global investment group managing funds for public pension and insurance plans, we work alongside our partners to build enterprises that drive performance and progress. We are active in the major financial markets, private equity, infrastructure, real estate and private debt. As at December 31, 2021, CDPQ’s net assets totalled CAD 419.8 billion. For more information, visit cdpq.com, follow us on Twitter or consult our Facebook or LinkedIn pages.
This is a huge deal for CDPQ and its strategic partner, DP World.
It will take an approximately 22% stake in Jebel Ali Port, Jebel Ali Free Zone and the National Industries Park, three of the most prized assets in UAE valued at approximately US$23 billion.
The port of Jebel Ali is touted as the second largest outside of Asia, located to serve the trade corridor linking West and East through its connections to 150 cities around the world. The Jebel Ali Free Zone is the largest in the Middle East, with companies from 140 countries, including approximately 150 Fortune 500 businesses. The National Industries Park is a 21 sq. km area designated for manufacturing and processing companies.
Importantly, the three assets will remain fully consolidated businesses within the DP World Group and day-to-day operations, customers, service providers and employees will not be affected.
CDPQ will invest US$2.5 billion in this new joint venture, with the remainder of the transaction being financed by debt.
Other long-term investors will have the opportunity to acquire an additional stake of up to US$3 billion.
I note what Sultan Ahmed Bin Sulayem, Group Chairman and CEO, DP World, said on how this transaction will allow them to reduce their net leverage to below 4X net debt to earnings before interest, taxes, depreciation, and amortization and how they believe this new partnership will enhance their assets and "allow us to capture the significant growth potential of the wider region".
The pandemic and recent economic conditions are the main reasons why DP World wants to cut its operating leverage.
It's also worth noting what Emmanuel Jaclot, Executive Vice-President and Head of Infrastructure at CDPQ, said:
“This investment in Jebel Ali is another great illustration of the partnership between CDPQ and DP World, which now spans four continents and eighteen terminals. Today, we are pleased to deepen our long-standing relationship with a world-class logistics and supply chain operator by investing in this strategic trade infrastructure, one that will play a pivotal role in the evolution of the global economy. DP World is well positioned to provide innovative solutions to their customers worldwide, and we welcome this opportunity to invest in a best-in-class group of infrastructure that provides CDPQ with exposure to new fast-growing markets and trade routes in Africa and South Asia.”
That part of the world is growing fast and over the long run, Jebel Ali and these other assets will grow very nicely delivering billions in revenues.
In an email exchange, Emmanuel told me: “I feel very good about the risk/ return profile for our clients.”
I agree and this transaction also highlights the importance of having the right strategic partners in everything you do: ports, airports, logistics, onshore and offshore wind farms, toll roads, you name it, you need a very strong operating partner who knows how to operate assets and enhance their value.
One of the articles above also quoted Emmanuel Jaclot as saying 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.
If you look at page 48 of CDPQ's 2021 Annual Report, you'll see their geographic and sector exposure for their infrastructure portfolio which stood at 10.8% of total assets at end of last year:
You can see that the Infrastructure portfolio has reduced its broader energy assets over the last five years and is increasing its industrials and transportation assets.
Don't forget, it was just two years ago that DP World and CDPQ announced plans to expand their investment platform for ports and terminals with an additional commitment of US$4.5 billion.
DP World still owns a 55% stake in the platform, while the remaining 45% is held by CDPQ.
Let me end by congratulating Emmanuel Jaclot and his CDPQ team for the great work they've been doing and for being named the second largest institutional investor in infrastructure in the world, according to Infrastructure Investor, an internationally recognized industry publication.
I also want to congratulate Martin Laguerre, EVP and Head of Private Equity at CDPQ, for his Bloomberg interview (only available to subscribers) discussing their PE strategy in Quebec and internationally.
I can tell you that I met up with one if his peers last week and he spoke very highly of Martin and CDPQ's PE strategy (that tells me they're really good at what they do).
Below, BNN Bloomberg's David George-Cosh discusses the CDPQ-DP World deal.
Also, see what goes into the daily routine at Jebel Ali Port, the largest marine port in the Middle East and the flagship facility of DP World.
CDPQ's clients are now proud owners of this port and this will be a great long-term investment.
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