DP World’s 14 Million Containers Show Why Bonds Win: Arab Credit

May 20, 2014 3:48 am ET

May 20 (Bloomberg) -- DP World Ltd., the port operator whose container business jumped 12 percent in the first quarter, is riding a resurgence of bullish sentiment in the Gulf Cooperation Council as its bonds beat peers.

The $1.75 billion security due July 2037 of the company, which operates ports from Hong Kong to Peru, made 15 percent in 2014, the most among more than 500 securities from the six- nation GCC, according to data compiled by Bloomberg. The Dubai government’s notes maturing in January 2043 were the second-best performers, rising 14.8 percent, with the average return 3.5 percent, the data show.

DP World, which handled more than 14 million containers in the first quarter, stands to benefit from growing volume at its main port in Dubai as the emirate imports materials amid $8 billion of construction to host Expo 2020. Credit default swaps are falling as the sheikhdom’s economy, the second-largest in the United Arab Emirates, is forecast to grow 5.1 percent this year, the fastest pace since 2007, International Monetary Fund data show.

“DP World is one of the best assets in the region, and when you consider what has happened to Dubai sovereign risk and funding costs, this is following,” Apostolos Bantis, a credit analyst at Commerzbank AG in Dubai, said by phone yesterday. “Dubai names have some room to go further despite the tightening so far.”

Investor Flight

The yield on DP World’s 2037 bond fell 108 basis points this year to 5.92 percent, the lowest in almost a year, according to data compiled by Bloomberg. That compares with a 48 basis-point decline to 4.12 percent on May 16 for Middle East debt, according to JPMorgan Chase & Co. indexes.

DP World said in April it’s well positioned to outperform the industry, which is forecast to grow about 5 percent in 2014.

“The credit story on DP World adds up,” Ahmed Shehada, head of advisory and institutions at National Bank of Abu Dhabi Securities LLC, said by phone yesterday. “But I’d be very wary whether there is more to go. The winners recently are those who went into long-term paper amid the risk. Now they’re closer to the fire than six months ago.”

Yields on bonds with longer tenors soared last year, with DP World’s gaining 138 basis points, after the U.S. Federal Reserve first suggested it would reduce its monthly bond purchases, triggering a flight from risker assets.

The outperformance of the DP World bond this year is partly because of a rebound in these long-dated bonds, Bantis said.

Dubai’s credit default swaps fell to 155 May 9, while the yield on the emirate’s $500 million 2043 bond declined 91 basis points to 5.68 percent this year. The sheikhdom’s lower cost of borrowing tempted the government to sell $750 million of Islamic bonds in April, and state-owned holding company Investment Corp. of Dubai raised $1 billion last week.

“It makes sense that Dubai-related debt has picked up aggressively,” Shehada said.