Aus-NZ Feature Material from Dave Mac

The economic downturn in Australasia is causing port owners in both New Zealand and Australia to feel the pain of seeing their “cash cows” become a drain on their resources.

Traditionally, infrastructure investment has been seen as a sound if unspectacular means for investors – private and local government alike – to gain a productive source of dividends, while at the same time see their asset values rise.

Suddenly, the global economic crisis has created a challenge for owners who are having to refresh their thinking. Some are thinking of merger or rationalisation, some are having to inject money instead of taking it out, and some are selling up altogether.

The most severe effects are being felt in Australia.

Private investors Babcock & Brown Infrastructure and Asciano are trying to sell Queensland coal-rail and port facilities respectively. Offers for Babcock & Brown Infrastructure’s (BBI) Dalrymple Bay Coal Terminal (DBCT) asset are expected to close shortly, following a due diligence process with several parties. BBI is also currently in talks with parties interested in buying PD Ports in the UK.

Asciano, which owns the former Pacific National rail business and Patrick Ports has tried to find an alternative solution to its troubles, opting for a A$2.3bn (US$1.9bn) underwritten equity raising, rather than sell assets or bring in a cornerstone shareholder.

New Zealand’s richest man Graeme Hart has been reported as being interested in making an offer to inject equity and capital to help Asciano back to health.

Local government owners are also feeling the effects of the economic crisis. The state of Queensland is to sell infrastructural assets including the Port of Brisbane Corporation and Abbot Point Coal Terminal. The sell-off was announced by state premier Anna Bligh after Queensland lost its AAA credit rating.

On the other side of the Tasman, Auckland Regional Holdings (ARH) – owner of the Ports of Auckland – is promising an injection of capital into the port to help it meet upcoming debt repayments.

This follows the decision of the ARH parent, the Auckland Regional Council (ARC) to “tighten the screws on its funding arm”. ARC relies on funding flows from the ARH to provide the money for much of what it does as a regional council. It needs continuing funding flows from the port investment.

There is further evidence of the willingness of local authority owners to review the “status quo”. Discussions are ongoing between Lyttelton and Otago towards some form of operational co-operation. Lyttelton’s local authority owners in Canterbury first saw the potential to bring in an outside terminal operator in Hutchison a couple of years ago and after Otago scuppered the deal by taking a blocking shareholding, they were flexible enough to see co-operation with their adversary as a way forward.

Hawkes Bay Regional Council is also prepared to sell down shares in the Port of Napier, albeit maintaining a ruling shareholding.

While the winds of change may be felt, ports still appear to have a sound base of growth – even if this is not matched in all cases by comparative profit growth.

Australian ports have maintained trade growth over the past ten years, mainly due to world demand for mineral exports. The value of Australia’s international trade has grown at an impressive rate of 8% per annum since 1999, and reached 798m tonnes in 2007/08.

To take one example, the Port of Brisbane’s trade performance over the same period has grown ever faster, with the value of its international trade growing at 12%. During 2007/08, Brisbane achieved a new record of 30.2m tonnes throughput for the port.

Brisbane has invested nearly A$1bn (US$807m) in capital expenditure projects since 1998/99, and in the next five years plans to spend another A$954m (US$771m). Recent developments include the transition for the port’s two stevedores, Patrick Terminals and DP World, as they relocated and expanded their operations on the quayline.

Work is continuing on the construction of Berths 11 and 12, which will be occupied by Hutchison Port Holdings when completed in 2012 and 2014 respectively. This will make Brisbane the first port in Australia to introduce a third container stevedore.