DP World is based in Dubai, UAE and is a global leader in the business of international marine terminal operations, development, logistics and related services. The company is owned by the Dubai government and is a subsidiary of Ports & Free Zone World, its parent company, which is itself a subsidiary of Dubai World, its parent group. DP World became a global port operator through the October 2005 merger between the Dubai Ports Authority (DPA) and Dubai Ports International (DPI) and incorporated on August 9, 2006. DPA was previously responsible for operating two ports in the UAE, Port Rashid and Jebel Ali port. DPI was one of the word\'s leading port operators and acted as Dubai\'s international port management and consultancy.

1. Business Overview of UAE-Related
Companies: DP World
Introduction and Overview of DP World:
DP World is based in Dubai, UAE and is a global leader in the business of international marine terminal
operations, development, logistics and related services. The company is owned by the Dubai government and is
a subsidiary of Ports & Free Zone World, its parent company, which is itself a subsidiary of Dubai World, its
parent group. DP World became a global port operator through the October 2005 merger between the Dubai
Ports Authority (DPA) and Dubai Ports International (DPI) and incorporated on August 9, 2006. DPA was
previously responsible for operating two ports in the UAE, Port Rashid and Jebel Ali port. DPI was one of the
word's leading port operators and acted as Dubai's international port management and consultancy.
The company was established in 1999 with the initial objective of applying its expertise to manage ports in the
Middle East, India and Europe. The first contract was to manage Jeddah Islamic Port in Saudi Arabia. In 2004,
DPI strategically acquired the international terminal business of CSX Corporation, a US firm, resulting in
newly-acquired operations in Asia, Australia, Germany and Latin America. The company provides various
cargo handling services to commercial interests worldwide, including services to transport containers, general
cargo, and bulk cargo. The primary objective is to enhance the customers' supply chain efficiency by managing
container, bulk and other terminal cargo. A customer-centric approach is utilized that focuses on superior
service and established relationships.
As a measure of its commitment to these goals, DP World has become the first, and only to date, globally-
recognized certification through the U.S. Customs and Border Patrol for meeting rigorous standards in ensuring
the continued free flow of international trade, reducing cargo examinations, training and information sharing.
DP World currently owns and operates forty-nine terminals in thirty-one countries. Twelve new developments
are in the pipeline, ranging from projects in South America to Asia. A professional and dedicated staff of over
30,000 people serves DP World customers around the world.
In addition to its marine terminals, the company operates two other businesses: P&O Maritime Services and
P&O Ports Stevedoring SA. P&O Maritime Services is a specialist provider of marine services to both industry
and government with worldwide operations from Australia to Ireland. P&O Ports Stevedoring SA is one of
South Africa's major Stevedoring companies and offers services including bulk, general cargo, project cargoes,
carriers, car carriers, reefer vessels and passenger vessel stores and baggage handling. These businesses were
given control by DP World as a result of its $6.8 billion acquisition of Britain's most famous maritime company
in March 2006, Peninsular and Oriental (P&O) Steam Navigation Company. P&O was previously a British
shipping and logistics company from the early nineteenth century.
Due to the vast port operations that the company obtained in the process, including a substantial portfolio of
ports in China, it moved from sixth largest container port operator in the world by throughput to the fourth
largest. Containerization is a shipping technique that facilitates the ease of alternating between transportation by
sea, land or air.
Although DP World has business interests throughout the world, the company does not manage any terminals in
the U.S. The reason for this stems back to the acquisition of London-based P&O in March 2006. As part of the
acquisition, DP World received leasehold interests of P&O in New York City, Newark, Baltimore, Miami, New
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2. Orleans, and Philadelphia. In the U.S., the P&O deal created a major negative political and media backlash that
was triggered by a Florida-based competitor of DP World. Fearful of the effect a potential takeover would have
on its business, this company protested to Congress and the media over the effect of Arab ownership of U.S.
ports on homeland security. Although DP World obtained approval for the deal from the Committee on Foreign
Investment in the U.S. (FIUS), it failed to include politicians and the public.
Despite having hired a public relations (PR) firm to address this situation and having obtained support from
then-President George W. Bush, DP World was driven out of the U.S. On March 9, 2006. The U.S. operations
of P&O were sold by DP World to AIG Global Investment Group, an experienced global infrastructure investor
with ownership in the London City Airport and other entities.
Today, the company operates in three regions: Asia Pacific and Indian Subcontinent, Australia and Americas
and Middle East, Europe and Africa. The Asia Pacific region is based in Honk Kong and a second regional
office, which is responsible for business activity in Southeast Asia, is located in Manila. Three logistics are
centered in Hong Kong, Yantian and Shanghai. The Indian Subcontinent region is headquartered in Mumbai
and is a fast-growing region that spans from Sri Lanka in the east to Karachi and Port Qasim in the west. The
Australia region is headquartered in Sydney and is centered on the Australian market, including rail interests in
Queensland. The Americas region is headquartered in North Carolina and includes Canada and Latin America.
Some of the most ambitious development projects are centered in this region.
The Middle East region is based in the UAE and DP World represents this region's foremost port and terminal
operator. The Europe region, including Russia, is based in London due to its central location. Lastly, the Africa
region has a regional office alongside the corporate headquarters in Dubai. This region includes the whole of
Africa outside areas bordering the Mediterranean.
On November 26, 2007, the company had an initial public offering (IPO) and listed 19.55% of its company to
public investors through shares on the NASDAQ Dubai in the UAE. This IPO was fifteen-times oversubscribed
and remains the largest in the Middle East to date, raising $4.96 billion for DP World with an opening share
price of $1.30. Prior to this, Saudi Telecom was the largest IPO set in 2003 and raising $4.08 billion. Port &
Free Zone World previously held 100% of DP World and at this time retained control of just over 80% of the
company.
One of the main purposes of DP World's IPO was to help repay Islamic bonds, or Sukuk debt, that were used to
finance company expansion and to raise cash for the Dubai government. Currently, approximately 23% of DP
World floats as shares on the exchange to meet demand and has further reduced the ownership claims of Port &
Free Zone World to slightly less than 80%.
Management Review of Recent Corporate Performance:
There were significant changes taking place at DP World during the first half of 2007. At this time, the
company was restructured to become a pure port operator. Assets that did not enhance the port operating
business or meet strategic objectives were either transferred or sold. One of the drivers of the company's
impressive performance in 2008 was strong growth in the Middle East region, driven by DP World's flagship
port, Jebel Ali in the UAE. This area benefited from an increase in demand from origin and destination cargo
for the Middle East, Africa and India regions. Furthermore, new terminals are being added to DP World's
portfolio every year and contributing to company growth. However, by the second half of 2008, only the Middle
East, Europe and Africa region maintained positive growth as the trading environment became more difficult.
Within this region, European operations as a whole experienced a decrease in trading volumes but was offset by
positive growth in the Middle East and Africa.
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3. A diverse team of over 30,000 people are employed at DP World and are given incentives through a rewards
framework, wherever possible, and adhere to local labor regulations and statutes. DP World Institute was
established by the company to provide learning and development programs for staff, including operational,
technical and leadership tracks. Over three hundred managers in 2008 completed leadership courses through
such programs. Thirty-two people worldwide finished a program in 2008 that was established to augment future
functional and general management seeking global careers with the company. This program is referred to as the
Global Organizational Leadership Development (GOLD) program.
Company Response to Global Economic Developments:
The two years following the onset of the global financial crisis challenged even the most seasoned managers at
the company. Industrial production and trade fell at an unprecedented rate in 2008, only to experience brisk
growth from several months into 2009 until now. However, worldwide trade flows have not yet returned to pre-
crisis levels. Stock markets began trading higher and per capita income of emerging economies recovered
roughly half of its lost value beginning in March 2009. In fact, the Baltic Dry Index, a composite index that
assesses the price of shipping dry bulk products around the world and is a key indicator of world trade,
collapsed by 90% from its high on May 2008.
According to the World Bank, a trade rebound usually lags economic growth and, with weak trade finance and
still-depressed levels of investment activity, the future state of the global economy remains uncertain. Due to a
clouded outlook, companies like DP World expect a weak recovery unless private sector consumption and
investment demand improves.
Growth in developing markets provided great opportunities for DP World given the strong presence of the
company in such nations and the pertinence these markets hold to the business plan of DP World. World trade is
being led by developing nations, experiencing growth of 36% since October 2009. Nonetheless, the levels are
still 2.8% below pre-crisis levels and 10% below the trend growth rate, according to a World Bank study.
By the fourth quarter of 2008, port operators experienced a 5% decline in global cargo traffic. At this time,
trading conditions were the most difficult that they had been since the inception of containerization in the
1960s. These abysmal realities have resulted in many port operators to delay some planned capacity expansion
projects. DP World, for instance, will be delaying several projects including an offshore Jebel Ali terminal for
now.
China has responded to softness in its industrial production and slowing growth by executing a large fiscal
stimulus, which is partially responsible for a less severe trade slump in Asian countries. New projects
developments have been established by DP World in China to implement its strategic goal of expanding its
business interests in rapidly expanding emerging economies. Among such projects is a 29% stake that the
company holds in a container terminal at the north bank of Qianwan Bay in Qingdao. China's second-largest
foreign trade port is the Qingdao Port, which is southeast of Beijing and Shanghai.
Indian ports have played a central role in the company's development plans due to the high growth expectations
in the region. One of the benefits of DP World's acquisition of P&O has been the concessions it obtained in the
process from a P&O deal with India in 2004 to operate feeder ports for containerized and general cargo
throughout strategic locations in India. The company has designed terminals in the region that are capable of
servicing the largest ships afloat today either at day or night. Along with expansion goals in China, DP World
expects to double its capacity in India by 2016. This includes investments in a container terminal in Kochi and
Kulpi, India.
Following its IPO, the company has been discouraged with the valuation investors have placed on the company.
Since listing on the NASDAQ Dubai, its stock has declined by at least 40% despite being one of Dubai World's
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4. most prized assets. Therefore, recent news sources have accurately confirmed that DP World is negotiating with
officials in London to list on the London Stock Exchange (LSE) by the second quarter of 2010. If successful,
the company is expected to join the Financial Times Stock Exchange (FTSE) 100 index. Concerns have been
raised in London over the effects on its long-term performance from the financial crisis in Dubai, the collapse in
world trade and the significant reliance on volatile emerging markets.
At the same time, DP World is viewed by many as a solid commercial business with global significance. Its
strong presence in the still-booming Asia and solid earnings during normal times for Dubai makes DP World
attractive to investors. Officials at DP World estimated a near-doubling of potential funds that could be raised in
this listing versus the approximately $5 billion generated by its recent IPO, which is an impressive forecast
given that a new share offering would be dilutive and often be discounted relative to its market price.
The LSE is one of the world's premier financial exchanges and is an excellent source of equity market liquidity,
benchmark prices and market data for equities listed in the European time zone. It is the largest stock exchange
in Europe, the second largest globally after the New York Stock Exchange (NYSE) and has other attractive
selling-points, as well. Companies that list on the LSE are able to do so in British Pounds (GBP), US Dollar
(USD) or Euros (EUR). Lastly, some unique products are accessible to companies through the LSE, including
covered warrants and a variety of derivatives. ("DP World Seeks LSE Listing After Nasdaq Dubai
Disappointment", 2010) If DP World lists on the LSE, it will likely do so in its primary business currency,
USD, to eliminate any exchange rate risk. Furthermore, some of the products offered by the LSE may be useful
for DP World in hedging interest rate and exchange rate risks.
Firm-wide Risk Exposures and Strategic Risk Management:
One of the primary risks that DP World faces as a result of its worldwide operations and business activities is
exchange rate risk. For example, total equity in the company declined in 2008 by $1.4 billion due to adverse
currency movements. The specific cause of this reduction was goodwill and purchase price adjustments mainly
due to significant depreciations in GBP, Australian Dollar (AUD) and Indian Rupee (INR) over that time period
against the USD. The practice of DP World is to translate foreign currency transactions immediately to dollars.
Assets and liabilities of foreign operations are translated to USD at the reporting date. The company's exposure
to exchange rate risk is a result of the economic, transactional and translation risks that arises when exchanging
foreign currencies into USD and using a single currency on financial statements. The UAE dirham (AED) is the
currency of the UAE, but has a fix peg to the USD and therefore does not create exchange rate risk for the
company.
Financial risk management tools are in place for executives at DP World to address the potential negative
effects that exchange rate risk can have on the company's profitability. Forward exchange contracts, currency
swaps and other derivatives are the primary instrument used to hedge foreign currency risk exposures.
Sensitivity analysis is also conducted regularly to assess the likelihood of a strengthening or weakening of
various relevant currencies to the USD. The company has determined that 84% of its net operating assets are
not in USD or AED.
The company's management claims that the impact of currency movements on operating profit is partially
mitigated by interest costs incurred in foreign currency. Furthermore, management states that some currencies
are fixed to the USD beyond just the AED. Lastly, management believes that the diverse number of locations in
which DP World conducts its business provides some natural hedging. (DP World Annual Report 2008) The
extent to which this last statement is true, however, is debatable in academic circles. Also, DP World cannot
hedge the effects that exchange rates have on international trade flows and how that may impact the company's
activities.
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5. DP World is also exposed to interest rate risk as a primary result of long-term debt obligations and bank
deposits at fixed and floating rates. Interest rate swap agreements are the primary tool used to address this risk.
As of 2008, DP World had interest bearing loans and borrowings in USD, GBP, INR, AUD and Canadian
Dollars (CAR) totaling $1.13 billion.
Another risk that DP World faces is losses in revenue as a result of unanticipated natural disasters. Hurricanes,
for instance, have the potential of significantly damaging one or more of the company's terminals or ports.
Adequate property and casualty (P&C) insurance, if available, should be obtained to at least partially offset this
risk based on the probability DP World assigns to the likelihood of such a situation taking place relative to the
cost of hedging. Following the advent of catastrophe bonds (CAT), insurers and reinsurers can access capital
markets and extend its insurance of financial risks for natural disasters. DP World could also address disaster
risk manager by conducting a risk assessment, mitigation, preparedness and response and recovery plan at all
stages of a project lifecycle.
Recent events have displayed the evidence of potential liabilities and legal risks that DP World may face as a
result of the restructuring process and default risk of Dubai World. Following the announcement in November
2009 that Dubai World will seek to delay debt payments, international rating agencies revised the ratings of
Dubai's government-related entities (GREs). Six Dubai GRE credit ratings were cut to junk status, including DP
World, on December 2, 2009. This downgrade was a response to the low likelihood of extraordinary support
from the Dubai government toward these GREs.
Strategic investments could include efforts to mediate congestion issues at certain ports by expanding yard
capacity and increasing storage fees to encourage shippers to get containers off the terminal. Furthermore,
having adequate access to necessary funds will enable DP World to benefit from possible opportunities as a
result of divestitures of terminal interests at discounted levels as a response to the general economic slowdown.
DP World's debacle in attempting to do business in the U.S. stems from a larger issue of the effect of cultural
norms and consumer preferences in its ability to succeed in that particular nation or region. As a company that
is under ten-years old, the company was unprepared for the public debate that arose over the effect on U.S. port
security of DP World's acquisition of multiple ports throughout the U.S. Opponents of such a move capitalized
on the emotions and perceptions of U.S. citizens and essentially the debate was already lost before DP World
could even hire Washington lobbyists or a PR firm. True facts of the situation were replaced with xenophobia
and patriotism, thus overshadowing logic and reason, much to the detriment of the company.
The most important lesson learned here is that the company must consider its relationship to the public and
politicians when developing a business plan. Working exclusively with an obscure regulatory authority process,
as in this situation, is not sufficient. At the very least, the company should have provided reports to Congress
and representatives of the U.S. ports involved in the deal with explicit details of the company's intentions, as
well as encouragements for future dialogues with these constituents. (Rotemberg, 2009) Considerations of the
cultural norms, consumer preferences and politics on business will help DP World avoid thwarting future public
backlash that could undermine the company's goal of improving its global position as a transport player.
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