The global crunch has hit hard and fast, but there are still reasons to be cheerful as Felicity Landon finds out
While ports still have the intrinsic characteristics that drew investors and banks to these assets last year, the slowdown has come sooner and been more dramatic than anyone envisioned when these transactions were agreed, says Nasir Khan, the newly appointed chief development officer at Ports America. "This has resulted in a thinning out of the number of players, but represents a real opportunity for operators and investors like Ports America Group (PAG) who have been around the business a long time, have a nationwide footprint, have the relationships with port authorities and shipping lines, have the ability to spot opportunities and have a realistic view of what is achievable," he says.
Mr Khan, who will be responsible for leading Ports America's future investments and expansion in marine terminals, was previous director of infrastructure and energy finance at Citigroup, New York, where he led the financing of transportation sectors projects in the Americas.
Looking back on 2007, he says investors and project finance banks alike were drawn by the unique nature of ports - long-term cash generating assets with generally limited competition and high barriers to entry because of space constraints and environmental issues.
"For many ports, especially container ports, these factors coupled with growing trade levels and the trend towards containerisation had resulted in a reliable and consistently growing cash flow stream over the past 15 years - trading volumes generally grew at two or three times GDP growth."
Highstar Capital was one of the most successful investors in the US ports sector in 2007, taking on Ports America, MTCH and Amports against some aggressive competition.
The management of these companies was subsequently combined into PAG; the group is actively looking at a number of opportunities, says Mr Khan, both through public auctions such as at Oakland and Portland, and privately with shipping line partners.
"We are confident that financing remains available for port projects," he says. "We have developed strong relationships with a large number of project finance banks and are in constant discussion with them regarding opportunities we are looking at. We know that pricing will be higher - the 2007 deals were done in the Libor+1.50% range - because the overall perception of risk in the marketplace for all assets has increased. We also know that leverage levels will moderate, as banks now believe that the leverage on the 2007 deals was too high."
On the plus side, says Mr Khan, many of the new opportunities represent a return to more traditional project finance. "Many of the 2007 deals were multiple asset deals with limited security packages and volume risk. Many of the deals we are looking at today are single asset deals on which banks will be able to get a more traditional security package. This will be positively viewed by banks."
Mr Khan believes banks will also be more sceptical with regard to aggressive growth projections. Projects which have some committed volume from shipping lines, for example, are therefore likely to benefit from better financing terms.
Karsten Saethre, associate director specialising in shipping, offshore and logistics at DnB NOR's London branch, lists the key characteristics that make a port project an attractive investment: "Relatively stable cash flow based on the high barriers to entry and a volume depending on a wide range of different import and export types. We also value the long-term nature of the industry. We see significant synergies from being a leading ship finance bank using the same know-how and industry network to cover the port industry."
Adds Mr Khan: "Banks and other financing parties will also be more focused on the individual characteristics of ports - location advantages, competition, access to rail and highways, markets being served - as opposed to taking a largely asset class view, and so terms could vary markedly from port to port.
"Ports that do not have a natural advantage will need to find mechanisms to make up for the more limited opportunities and/or higher risks if they are to compete effectively with ports that do."
