Dubai Duty Free is planning to borrow $750 million from a syndicate of international banks in the coming weeks to help further finance the expansion of Dubai’s international airport, the company’s executive vice chairman Colm McLoughlin said.
DDF, which operates all of the retail outlets at Dubai’s airports, raised its first international financing last year, a $1.75 billion, six-year syndicated loan with tranches in dollars and U.A.E. dirhams. The new $750 million loan will be priced at 2.25% above Libor and will be denominated in dollars, Mr. McLoughlin said on Tuesday.
“I’m sure we’ll do more,” he said, adding that the new loan had a five-year tenor, meaning it will mature at the same time as the money borrowed last year.
“We haven’t a plan just now, but in five years’ time or in two years’ time when there’s not so much outstanding, the airport’s further continued expansion will need funds, and it’s part of our duty to do it, so I’m quite certain we will,” he said.
DDF is securing new financing at a buoyant time for debt-raising. The company already got better pricing on its $1.75 billion loan earlier this year thanks to a downward yield trend in global debt markets. It agreed with banks in July to reduce the interest rate on the dollar tranche from 3.25% to 2.5% above Libor and on the dirham tranche from 3.25% to 2.25% above the local Eibor rate.
The new borrowings are going toward airport construction and have quickly made the company a key cog in funding Dubai’s drive to bring more passengers through its terminals. Dubai, where the aviation industry employs 254,000 people and accounts for 28% of GDP, is building a new Concourse D at its main international airport.
The project is part of an expansion that is expected to raise capacity to 95 million passengers from around 72 million today. Financing from DDF so far accounts for about a third of the $7.8 billion price tag.
The form of any future financing isn’t set in stone, Mr. McLoughlin said, but the company has not yet given serious consideration to a bond sale or an initial public offering – a decision that would have to come from the government-owned Investment Corporation of Dubai, which counts DDF among its holdings.
“It has been discussed, but the real answer is no,” Mr. McLoughlin said. “We keep on being asked by people would we go do an IPO for some of our company, and the honest answer is we don’t know because the government decides this one day or not. I read the same thing about Emirates Airline all the time. We have a number of banks say to us it’s the sensible thing to do, but certainly from Dubai Duty Free’s point of view we don’t need to do anything like that at the moment. Our own operation is cash-rich.”
DDF has seen its revenues rise steadily over the years as Dubai has grown as an international hub for long-distance air travel. The company said in July that it made about $874 million of sales in the first half of the year, up 13% on the same period last year. The sales target for the full year is $1.8 billion, Mr. McLoughlin said, but DDF is hoping to raise that figure to $3 billion in a few years after new space in Concourse D opens.
The company is adapting its offerings rapidly as its mix of customers change, something it has done continually over the years, Mr. McLoughlin said. DDF, which was founded in 1983, has put up dual-language signs to accommodate a rise in Chinese passengers, for example, and now puts on special celebrations for Chinese new year.
“If you go to Singapore, Hong Kong, Heathrow or Gatwick, they will sell something to 17% or 18% of all departing passengers,” Mr. McLoughlin said. “We sell something to 49% of our departing passengers. We do that because we think we run the company fairly well.” -Dow Jones
