Lessons from the past

As international port operators desperately try to come to terms with the prospect that both global trade volumes and port asset values could contract in 2009, knocking sizeable holes in balance sheets in the process, Philippines-based International Container Terminals Services Inc (ICTSI) is tackling the subdued economic environment with the gusto that only comes with 'been there, done that' experience.

Back at the end of the 1990s, when soon-to-emerge operators in Dubai were strictly limited to Gulf stevedoring and long before the likes of Hutchison and PSA had developed global terminal networks, International Container Terminal Services Inc (ICTSI) was in the midst of rapid expansion.

But then the Asian financial meltdown hit in 1997-98 and the collapse of Asia's tiger currencies dragged the Philippine Peso down with it. This left ICTSI with dollar debts it could no longer service, forcing the sale of large swathes of its painstakingly constructed network.

Fast forward to the economic crisis of 2009 and, having repaired the damage caused a decade ago and forged a new network, chief financial officer Martin O'Neil is satisfied ICTSI will not suffer the same fate again.

 "We have spent a lot time structuring our balance sheet so we're not faced with big payments at short notice or caught out by currency fluctuations," he says. "Not being overleveraged is the key. This time around we're in a much better position."

ICTSI's financials for the third quarter last year were suitably healthy - revenue from port operations was up 35% year-on-year to PHP5.68bn ($120m), while EBITDA climbed 48% to PHP2.55bn ($54m).

As part of its financial plan for the downturn, last November the company successfully negotiated fresh medium term credit facilities with Philippine-based banks and investors totalling some Php6.85bn ($146m). With maturities due in five to seven years, these will be used to finance investments identified for prepayment this year.

"Back in the 1990s we had a big currency mismatch on debt and loans due for repayment in US dollars less than two years after the crisis struck. So the debt got bigger as the Peso devalued," explains Mr O'Neil.

"Now we have more than half of our revenues in Euros and US dollars so it can't sting us this time.

"In this business you have to be durable when there are dips in cargo because after two or three years it works itself out.

The company's current port roster includes its flagship Manila International Container Terminal and five other facilities in the Philippines, plus terminals in Brazil, Poland, Japan, Madagascar, Indonesia, Syria, China, Ecuador and Georgia.

Despite the economic downturn, Mr O'Neil says the company will still pursue the development of facilities at Buentaventura in Colombia and expand at Manila.

Further expansion is also an option once, as he predicts, sellers realise that terminal values can't be benchmarked at 2007 prices forever.

"There are more opportunities now than in a very long time, although some people are still looking in their rear view mirrors with their valuations," he says. "In the next six months prices will get more reasonable."

Any further purchases or concession bids will have to fit the ICTSI mould - small to medium sized container ports usually in the second and third tier markets with a good level of base cargoes, as opposed to transhipment traffic.

"We look at ports where we can add-value, where money is required for upgrades, or where the terminal has a bad reputation for poor handling practices," says Mr O'Neil. "Then we see how we can turn them around. I think our track record is unparalleled for doing that.

"Government privatisations are generally interesting for us as they are a good marriage of interests - they want experience and money for upgrades and we can provide both."

From a handling point of view, Mr O'Neil says ICTSI deploys a 'horses for courses' approach to port rejuvenation. For example, at the company's Ecuador facility at Guayaquil where ICTSI has a 20 year operating concession, the port was handling around 600,000 teu per annum when ICTSI took control in 2006. Cranes were notable by their absence, forcing lines to use expensive geared vessels. ICTSI's interim solution was to ship in two mobile harbour cranes which immediately improved operations. "We'll bring in quay cranes but that takes 18 months so this was the best way of improving operations quickly," he says.

"When we look at a port we diagnose what is required first. Then, whether it is equipment, civil works, port access, design or management, we've proven on many occasions that we can go in and get the performance parameters to a world class standard within less than two and a half years.

"Rehabilitating ports, that's our bread and butter."