What a difference a credit crunch makes – and how quickly. Are the heady days of massive investments, mega projects and investors keen to snap up “safe” port opportunities with long-term cash generating assets now just a distant dream?Who will be investing in the ports sector in 2009 and where will the opportunities be? The answer to this two-parter, according to several in industry, is “probably those with cash” and “maybe distress sales”.
“This is such a very different picture to a year ago,” says Chris Brown, projects lawyer with Norton Rose. “There has been this unbelievable drop-off in the freight markets and rates are very, very low. People are not quite sure when trade rates will pick up, or when the generally economy will pick up – but one thing that is likely to be hit in the downturn is trade, because a lot of countries have become quite protectionist. So export growth has been stopped in its tracks – and the impact on ports is formidable.”
Mr Brown predicts that many will sit on investment plans for a while, at least, especially as it is very difficult to raise debt in any case.
“It is a very changing environment. Some of the mega projects will be put on hold and the market will come back through consolidation and acquisition with equity,” he believes.
The question of how and when trade will come back is the one no one can answer, of course. “But until people get a better feel for what is happening, no one is going to commit to a big investment,” says Mr Brown. “There is virtually no debt available in the market place. And I think that the activity when it comes back won’t be newbuild – it will be more in acquisition of existing assets with equity. People with cash and equity will probably try to consolidate the market further.”
In December, Hutchison Port Holdings’ decision to withdraw its bid to develop new container facilities at Thessaloniki was attributed by the Greek media to the economic crisis and the inability of the consortium led by HPH to find the bank funding required.
Thessaloniki Port Authority had named the 50/50 joint venture between HPH and the Greek pharmaceutical company Alapis Holding as the preferred bidder – after the consortium offered ¢419m ($544m) for the 30-year concession period.
Also in December, PD Ports revealed that construction of its £300m Northern Gateway container terminal planned for Teesport might not start until next year (2010) if the right finance cannot be put in place.
There will clearly be a slowdown in major investments in the ports sector in 2009, simply given the availability of funds, says Klaus Rud Sejling, vice president, business development for APM Terminals, based in The Hague.
“Recent years have overheated the port investment market and APM Terminals believes that a more realistic division of risk and return between players is crucial,” he says.
The economic recession will affect APM’s business activities and the company has already reviewed its investments and commitments and cut or postponed non-committed investments/proposals, says APM Terminals chief executive Kim Fejfer. “But despite the economic crisis, we still will look for opportunities to grow our business,” he adds.
Mr Fejfer says it’s too early to say where port operators or investment companies might be looking to invest in 2009 and beyond. “We’re looking at this tough business environment and want to see how things track in both mature markets and emerging economies.
“We have already seen overall investment activity slow down in 2008 due to the pending financial crisis and the overheating of concessions/construction.”
As for APM’s plans in the current climate, he says: “It is important to handle these tough economic times in a responsible and responsive way. For us as a company, we will need to focus on coming out of this crisis even stronger than before.”
Another terminal operations source says that even in such economically difficult times, terminal operators will continue to look for port investment opportunities.
“But the operators themselves will have to devote considerable resources – including money – to shoring up existing operations battling declining volumes; hence operators will have less resources to invest.” In this sense they will have to be more choosy.
“Port investment will generally slow down because of the difficulty in obtaining credit and loans for port projects – which are generally very capital intensive, of course. Even if the bigger players have access to credit, they usually have to partner local players who may not be able to obtain credit so easily.”
Finally, perhaps inevitably, there may be operators which want to sell off their terminals because of cashflow problems: “This presents a distress sale opportunity.”
