The Hindu Business Line : Asian port sector to see increased action

The Unctad Review of Maritime Transport 2007 brings into focus certain interesting developments in the shipping sector. First, the presence of major terminal operators in Asian ports. Second, a trend towards greater consolidation and finally, purchase of ports by private equity funds in keeping with the practice in developed countries.

The global terminal operators headquartered in Asia include Cosco Pacific, DP World, Evergreen, Hanjin, Hutchison Port Holdings, ICTSI, NYK/Ceres and PSA International. Together, they have a throughput of over 220 million TEUs, or roughly half of the world’s total throughput of containers.

However, another terminal operator, though not with a global port portfolio, is emerging as an important player. China Merchants Holdings International, which has interests in port operations in Hong Kong, Ningbo, Qingdao, Shenzhen, Shanghai, Tianjin and along the Yangtze River Delta and the Bohai Economic Rim, has also branched out overseas with an investment in Ben Dinh Sao Mai port in southern Vietnam.

According to the Review, CMHI has bought from DP World its terminal interest in Shenzhen and acquired 30 per cent equity stake in Shanghai International Port Group, which not only operates the Yangshan deepwater port but also has a stake in the terminal operations in the port of Zeebrugge (Belgium).

Consolidation trend

There are signs of a trend towards greater consolidation within global terminal operations following the maturity of the market after the growth in tenders for terminal concessions in the eighties and the nineties. However, despite this, as the Review points out, the market continues to be fragmented with many smaller players, usually related to liner shipping companies. In 2006, over half of the total world container port capacity was controlled by a small number of stevedores and container lines that can be considered to be operating on a global scale.

Private funds in play

In the last few years, there has been a movement towards the purchase of ports by private equity funds, says the Review, and this resulted in the subsequent delisting of ports from the world’s stock exchanges. For example, the United Kingdom’s Associated British Ports has been bought by Admiral Acquisitions, a private equity firm. The same country’s MDHC has been bought by Peel Holdings, a private firm now 49 per cent owned by Deutsche Bank.

Orient Overseas Container Line, the Hong Kong-listed liner shipping company, sold its entire terminal operations (excluding Long Beach and Kaohsiung) to Ontario Teachers’ Pension Plan Board and P&O Ports has been bought over by DP World, wholly owned by the Dubai Government.

Other non-listed port owning companies having varying degree of interests in Asia include PSA International, Eurogate, Hamburger Hafen und Logistik, Mediterranean Shipping Company, Terminal de Contenidors de Barcelona in Europe and Stevedoring Services of America.

The ports still listed on the Asian stock markets, as the Review points out, include CHMI, Cosco Pacific, HPH (through its parent company Hutchison Whampoa) which are all listed in Hong Kong, ICTSI in Manila, Hanjin in Seoul (although Macquarie has a 40 per cent share of the terminal business), APL in Singapore (through its parent company NOL), Evergreen in Taiwan and NYK in Tokyo.

Purchasing costs up

The cost of purchasing terminals, the Review estimates, has gone up. When DP World purchased CSX terminal in 2005, the price/earning (p/e) ratio was 14; when Admiral Acquisitions bought Associated British Ports, the ratio was 15 and when Deutsche Bank bought a share in Peel ports, it was 16. When DP World purchased P&O Ports, less than a year after the purchase of CSX Terminals, the p/e ratio had risen to 19 times.

The p/e ratio of the Forth Ports in the UK, perhaps the last UK port company still listed on the stock exchange, was around 20 in the middle of 2007 when ICTSI was at 25 and CMHI at 36. The higher ratio for CMHI reflects the confidence investors have in the Chinese port sector. CMHI has approximately 35 per cent stake in the port sector.

The Review concludes with the observation that ports are increasingly attracting the interest of investors, and so for the developing countries the main issue is no longer how to finance the port infrastructure projects but which partner to choose.

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