Ports a Hot Commodity

Aug 13, 2013

Ports a Hot Commodity

By Gillian Tan

The sale of 99-year leases attached to two Australian ports in the nation’s most-populous state for US$5.3 billion earlier this year was at a multiple so rich that two other owners of berths have since put their interests up for sale. Australian port assets are prized for their stable revenue and rarely come up for sale, but the country has emerged as a hotbed for port deals this year.Industry Funds Management and Abu Dhabi Investment Authority led a consortium that paid 25 times earnings for the ports of Botany and Kembla in April, more than double the average multiple for previous deals, including Access Capital’s acquisition of a 36% stake in Flinders Ports in December 2011 at a multiple of 11.2 times.

Now, Global Infrastructure Partners is looking to sell its stake in the Port of Brisbane, while New South Wales state is considering selling the world’s biggest coal-export terminal in a deal that could fetch up to US$640 million.

Global Infrastructure Partners, which has more than US$15 billion under management, is exploring the sale of its 26.7% stake in one of Australia’s largest container ports, bankers and others familiar with the matter said last week.

GIP’s stake in Port of Brisbane, which processes grains, beef and cereals, could be worth more than US$732 million. The New York-based firm teamed up with Abu Dhabi Investment Authority, Industry Funds Management and QIC Ltd. in November 2010 to pay US$1.9 billion for a 99-year lease on the port.

Multiple attempts to reach GIP for comment were unsuccessful.

 

Fund managers with stakes in ports and bankers say interest in the forthcoming sales will be heavy, although buyers have yet to step forward.

“The market is showing a willingness to pay for big trophy assets with strong cash yields,” said Tom Snow, partner at Access Capital Advisers, which has US$8.7 billion of funds under management and investments in Port of Adelaide and other regional ports in South Australia state.

Richard Hoskins, head of global asset management at Hastings Funds Management, said GIP is riding on the success of New South Wales state’s recent sale of Port Botany and Port Kembla.

“We think they could garner interest from offshore jurisdictions like Asia, where the cost of capital is cheaper,” said Hoskins, whose fund has US$6.6 billion under management and was part of a consortium that didn’t succeed in acquiring the ports in April.

He said Australian ports are fetching lofty prices from buyers because of their “low degree of substitutability and monopoly-like characteristics.”

Michael Hanna, the head of Australia Infrastructure for Industry Funds Management, which oversees US$42 billion, concurred. “There’s minimal competition for trade given their geographical location,” he said, adding that Australian ports offer stable returns and cash flow thanks to long-dated contracts that help cushion them from waning demand for specific commodities.

The fund aims to boost its ports exposure, Hanna said, but expressed concern about the sector because of economic uncertainties.

Last month, New South Wales state hired Morgan Stanley to study whether it would make commercial sense to sell the Port of Newcastle, which handles more than 105 million metric tons of coal annually.

“We are very keen to progress this transaction as quickly as possible,” said the state’s treasurer, Mike Baird.

Even though gateways like Port of Newcastle have long-term contracts with major miners, including Glencore Xstrata PLC, that guarantee they will be paid for specified volumes of coal regardless of the eventual supply, Snow said slowing commodity trades and softer demand could weigh on valuations.

“Assets with high exposure to commodity trades will not attract the same premium as Ports Botany and Kembla,” he said.

Hoskins said single-commodity ports are less attractive to traditional infrastructure investors than to users of that commodity, like India’s Adani Group and GVK Group, which are investing in the expansion of a port in Queensland state that will allow them to ship coal from their nearby mines to their home market.

Hastings, which has around US$1.4 billion to spend, isn’t exploring selling its port stakes. “Infrastructure funds have less incentive to sell existing assets . . . as deploying capital in such an environment can be a challenge,” Hoskins said.