Extracts
The series of deals has been accompanied by news that owners of other port operations, such as Seattle-based SSA Marine and Oakland-based Marine Terminals Corporation, have hired investment bankers to consider sales to cash in on investors' new appetite for the assets.
There is, nevertheless, agreement on the main reason for the increased prices. The ports sector has become the latest infrastructure class - after toll roads and airports - to attract investors such as pension funds seeking a stable, long-term return on investors' cash.
Trade growth is seen as reasonably certain, in the same way toll road investors have been sure that people will keep driving cars.
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Ports enjoy sea change in fortunes
By Robert Wright, Transport Correspondent
Published: November 29 2006 02:00 | Last updated: November 29 2006 02:00
When Dubai's DP World agreed to buy the global terminals business of CSX, the US railroad operator, for $1.15bn in late 2004, there was general astonishment in the world ports industry.
The valuation was seen as a giddy high because it valued the terminals - in places as varied as Hong Kong and the Dominican Republic - at 15 times annual earnings before interest, tax, depreciation and amortisation.
However, that multiple now looks modest. Most analysts valued DP World's £3.92bn ($7.63bn) takeover this year of P&O, the UK container ports and ferries operator, at 19 times ebitda.
Last Thursday, the Ontario Teachers' Pension Fund announced it would pay $2.35bn for the container terminals business of Orient Overseas International, the Hong Kong-based parent of OOCL, the container shipping line: a valuation of more than 20 times.
There have been fierce contests to buy other assets, including the UK's PD Ports and Associated British Ports, which was bought by a consortium led by Goldman Sachs, the US investment bank, in July for £2.8bn: about 15 times ebitda.
The Goldman consortium had to raise its bid twice, once after being rejected by the ABP board and once after a counterbid from Australia's Macquarie.
The series of deals has been accompanied by news that owners of other port operations, such as Seattle-based SSA Marine and Oakland-based Marine Terminals Corporation, have hired investment bankers to consider sales to cash in on investors' new appetite for the assets.
But at the same time other industry observers have expressed scepticism about whether port assets - long regarded by investors as overly risky because of their exposure to cyclical shipping markets - can suddenly be worth so much more than previously thought.
There is, nevertheless, agreement on the main reason for the increased prices. The ports sector has become the latest infrastructure class - after toll roads and airports - to attract investors such as pension funds seeking a stable, long-term return on investors' cash.
"There's a general realisation that these are scarce assets," says one person involved in the industry. "It's difficult to increase supply, particularly in developed countries where planning and environmental concerns come into play."
Trade growth is seen as reasonably certain, in the same way toll road investors have been sure that people will keep driving cars.
Tom Cooper, the UBS investment banker who handled the OOIL sale on the seller's behalf, agrees about infrastructure funds' significance. But he says there is a separate battle between Hong Kong's Hutchison, PSA and DP World to dominate the world container ports industry.
"You have two different things going on," Mr Cooper says. "You have infrastructure funds on the one hand, which are participating in a rather different market from the game of global consolidation of container ports that's going on between Hutchison, PSA and DP World."
The infrastructure funds' assessment of the risk of the assets has also decreased. He says: "In the old days, port assets were seen as partly cyclical. They're exposed to trade cycles and local competition. In some places they were unionised and high-cost. The perception of each one of those has changed."
Not everyone agrees prices can continue at their present level. In an interview this year, Kim Fejfer, chief executive of APM Terminals, the world number three container terminal operator by throughput, said he expected valuations to return to closer to historic levels.
Copyright The Financial Times Limited 2006
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