HFW Ports and Terminals Major Investments Report [A4] May 2013

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    Global investmentin ports and terminalsp g u gwg. i h cx uggg , H Fwck W h c w ch

    y h wh h u c. th h whch fc h cu, wh g why.

    Ports &Terminals

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    Increasing role for private investment

    Until airly recently, the ownership o ports and terminals wasin state hands or strategic as well as commercial reasons.But the emergence o more ree trade agreements,unprecedented expansion in trading volumes over the lastdecade and widespread deregulation o many economies

    has led to the private sector playing an increasinglyimportant and protable role in marine terminal management.

    The trend has proved particularly acute over the last tenyears, says Alistair Mackie, Head o Ports and Terminal Groupat Holman Fenwick Willan. He sees private participation ininrastructure (PPI) as a vital part o port development intodays liberalised trading environment. PPI projects help toprovide the nancial support and expertise that many portsmight need or their commercial and social objectives, hesays. And or the investor they can provide the opportunityto prot rom rapid growth in international trade.

    In practical terms this can simply mean improvingperormance. Many ports and industry players have realisedthat they need to reduce congestion and minimise delays ithey are to earn a prot rom rising imports and exports. Inthis sense private capital has proved crucial. In act, theresearch revealed that privatisation is oten considered asthe best and most ecient way to simply increase porteciency and throughput (see chart 1).

    In addition, the research reveals that many governmentsseek to benet rom private unding into large work projectsor economic recovery and job creation. This is seen with theLondon Gateway terminal development, where privateinvestor DP World highlights the employment opportunitiesas the largest job creation project in the UK. The six-berthport, which is currently under construction will create 12,000

    new jobs and employ a urther 20,000 people indirectly.

    Similarly in Sepitiba Bay, Brazil, on receiving the permit tobuild an iron ore port acility in September 2010, a privatemining company stressed the employment opportunities itsport project would lead to or the Minas Gerias area.

    Recent research rom the Organisation or EconomicCo-operation and Development has predicted that portsworldwide need to nd some US$830 billion capitalexpenditure by 2030 or total inrastructure (including airport,port, road, rail, energy and water investment).

    Global phenomenon

    This need to und and expand ports came at an opportunetime when many private investors sought to diversiy theirportolios to include exposure to the booming maritime andcommodity sector. Long-term terminal lease deals thereoreenabled attractive returns on investment.

    02Global investment in ports and terminals

    1. Factors driving demand for infrastructure investments

    Costs due to delays Missed berthing slots Higher uel costs to

    make-up schedules Readjusted schedules

    Increased demandor investmentin ports andinrastructure

    supporting ports

    Piling ocontainers atterminals due totransportationbottlenecks

    Congestion ataccess roadsand intermodalconnections

    Insucientaccess roadsand intermodalconnections

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    The research reveals there were 195 separate privateparticipation in inrastructure (PPI) projects over the lastdecade. This was or container, dry bulk, liquid bulk and multi-purpose terminals with a total investment o US$38 billion.

    In investment terms, greeneld or new-site projectsrepresented the major type o project in the seaport sector.The research highlights that US$20 billion was spent on 78greeneld projects in Asia, the Pacic, Latin America and theCaribbean through the last decade (see chart 2). Concessiondeals saw a total investment o US$15.5 billion or 97projects. Management and lease projects, meanwhile,received a total o US$305 million or 11 ventures.

    A result o the infow o capital or many terminals has beenseparation o port authority rom port operator, with theormer ocusing on policy and regulation and leavingprotable commercial services surrounding port operationsto the private sector. This does not come without hetycapital infows, large scale personnel management as well asheavy machinery and inrastructure investments.

    Concessions are generally awarded on a leasehold basis orbetween 20 and 50 years. This is with the notable exceptiono the UK, where reehold deals are possible. Investments

    tend to range rom stakes o 20 or 30% to total nancingdepending on the host country and port authority.

    04Global investment in ports and terminals

    East Asia and Pacic

    Europe and Central Asia

    Latin America and the Caribbean

    Middle East and North Arica

    South Asia

    Sub-Saharan Arica

    34

    48

    26

    8

    17

    18

    8

    14

    34

    15

    3

    2

    2

    231

    32

    2. Projects by type and region*

    Concession Divestiture Greeneldproject

    Management

    and leasecontract

    97

    78

    119

    * 2000-2009. Source: PPI-World Bank; Pipal Research analysis

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    The distribution o PPI deals worldwide is airly evenaccording to the research. O the total projects initiatedbetween 2000 and 2009, 29% were in East Asia and thePacic ollowed by Latin America and the Caribbean at 22%and Sub-Saharan Arica with a share o 20%. While theshare o investments into the dierent regions are similar, thenancing sums do dier. East Asia and the Pacic sawinvestments worth US$13.2 billion, Latin America andthe Caribbean were US$9 billion, but Sub-Saharan Arica justUS$4 billion (see chart 3 below).

    In terms o individual countries, China, India and Brazilrecorded the highest number o PPI investments in ports andterminals business in the latter part o the last decade.Between 2006 and 2009, China saw almost US$4 billion inPPI projects, Brazil US$1.5 billion and India US$2.5 billion.This is a refection o the rapid trade-related growth in theseeconomies over the last ew years.

    3. Investment in projects by region (US$ millions)*

    Global investment in ports and terminals 05

    2000 $486 $97 $520 $564 $0 $178 $1,844

    2001 $231 $0 $825 $0 $220 $0 $1,275

    2002 $1,400 $0 $179 $0 $240 $0 $1,819

    2003 $1,270 $121 $282 $0 $44 $156 $1,873

    2004 $822 $54 $163 $430 $238 $71 $1,777

    2005 $3,054 $202 $229 $103 $500 $2,380 $6,468

    2006 $2,112 $301 $851 $742 $1,497 $86 $5,589

    2007 $2,650 $907 $1,252 $1,126 $1,331 $71 $7,336

    2008 $758 $429 $2,466 $1,060 $658 $873 $6,243

    2009 $420 $135 $2,151 $153 $790 $159 $3,808

    Total $13,203 $2,246 $8,918 $4,178 $5,518 $3,974 $38,032

    Financial East Asia Europe and Latin America and Middle East and South Asia Sub-Saharan Totalyear and Pacifc Central Asia the Caribbean North Arica Arica

    * 2000-2009. Source: PPI-World Bank; Pipal Research analysis

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    Key investors

    Investors into new port developments are dominated by thelarge and experienced players in port management. Thisincludes PSA International, APM Terminals, DP World andHutchison Port Holdings (see chart 4).

    PSA leads the way in terms o the value o its investmentswith participation in 28 port projects through 16 countries,handling a global capacity o over 100 million TEU per year.In general, the majors in the business appear to have animpressive and varied portolio although in some cases there

    is regional bias or expertise. DP World, or example, alongwith CMA-CGM and APM Terminals have been the majorprivate investors in port and terminal projects in the MiddleEast and North Arica or the 2006 to 2009 period.

    There are also a wide variety o newcomers that have hit theheadlines including the 2009 deal o Chinas COSCO Pacicsigning a 35-year lease contract worth US$4.2 billion to takeover the management o the port o Piraeus in Greece.

    The ICTSI bid or Portek in June 2011 is urther evidence oincreasing competition in the sector. The acquisition would

    put ICTSI at the ront o an emerging second tier ooperators, also including Yildirim and Noatum Group. While

    4. Top 6 global investors (US$)*

    06Global investment in ports and terminals

    PSA International $2,922m

    APM Terminals $2,461m

    DP World $1,908m

    Hutchison Port Holdings $1,209m

    International ContainerTerminal Services Inc

    $384m

    CMA-CGM $375m

    * 2006-2009. Source: PPI-World Bank; Port Investor; Pipal Research analysis

    much smaller in terms o volumes or capital, thesecompanies are building up portolios comprising eeder andsecond-string niche ports: sure signs that the smallerterminal market is set to become a lot more competitive.

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    Investment types

    The type o ports and terminals receiving investment haverevealed some interesting industry patterns, explains Mackie.We see there has been a huge port sector split between thedierent types o terminals, he says. There are also sometrends in the type o port nanced with private unds, hesays. Historically in Asia, dry bulk projects have oten beennanced domestically in conjunction with the entity involved