Terminal Operators 2012:
The top four container terminal operators HPH, PSA, APM, DP World control around 45% of the world's (gross) container throughput, with no single company holding as much as a 14% share. Despite the poor financial performance recently, analysts expect major increases in terminal throughput over the next decade. Rumors of potential merger & acquisitions of terminals abound as TOs jockey for market share. The other side of the M&A question is will terminal operator consolidation trigger IPOs?
George Lauriat, AJOT
Setting The Stage: The IPO
In March 2011, HPH (Hutchinson Ports Holdings) arguably the world’s largest terminal operator, a subsidiary of the Hong Kong-based multinational HWL (Hutchinson Whampoa Limited), did something quite unexpected.
HPH, spun off its port assets in Hong Kong, Guangdong Province, Macau and Shenzhen – some 30 container berths with a throughout of nearly 22-million teus – and created a new company HPH Trust. Given the size of HPH’s holdings (see chart) spinning off the South China core assets, wasn’t that unusual. However listing the new terminal company on the Singapore Stock Exchange (SGX) last March, might just be the industry setting event of the next decade.
The road to IPO began in January of 2011 when HWL announced plans re-organize its deep-water container port businesses in Guangdong Province in Mainland China, Hong Kong and Macau and to list the new company, HPH Trust on the SGX. HPH Trust, was officially listed March 18, 2011, with a portfolio that included container terminals in Hong Kong (Hongkong International Terminals and COSCO-HIT Terminals) and Yantian, Shenzhen (Yantian International Container Terminals), as well as the “economic benefits” of river ports (Jiangmen International Container Terminals, Nanhai International Container Terminals and Zhuhai International Container Terminals (Jiuzhou)) in the Pearl River Delta and other services.
Before the planned IPO could be implemented Singapore-based terminal operator, PSA International, which owns 20% of HPH (there is tremendous cross over business with terminal operators) had to divest from the soon to be HPH Trust assets.
The IPO raised $5.45 billion, the largest in SGX-ST history (interestingly the IPO expressly excluded Dow Jones), and while this pales in comparison to the $104 billion “Facebook” IPO, the HP Trust launch has raised the profile of the Singapore exchange as the alternative to Hong Kong’s Hang Seng, especially for maritime related IPOs.
HPH Trust bills itself, as the “first publicly traded container port business trust.” While there are a number of publicly traded container terminal operators, HPH Trust is arguably the first terminal operator to be built from the ground up as a publicly traded company. Generally, TOs are subsidiaries of other operating units, such as steamship lines, larger global conglomerates or in some cases venture capital funds.
The real advantage to the IPO is access to capital for expansion. In this respect HPH Trust might be setting the stage for more TO IPOs.
In 2011, global container TOs handled an estimated 590 million teus out of total capacity of 886 million teus, or roughly speaking the world’s terminals operated at 67%, reflecting the soft demand in 2011. But demand is expected to grow at 6% annually over the four years and capacity growth at a little over half that rate. By 2017, there should be an almost a balance between terminal capacity and terminal demand. By 2020 teu demand is forecast to outstrip terminal capacity as available space for developing new capacity diminishes.
But terminal demand isn’t homogenous and some regions are hotter than others, and balancing the portfolio to take advantage of rising throughputs is feeding competition among TOs. In this economic environment, organic expansion is difficult and consolidation through M&A is a key element.
There are around twelve TOs with a throughput exceed of 10-million teus annually with and six with a throughput of over 50-million teus. In many cases, there is a strong geographic bias to the portfolio. In the extreme case of HPH Trust, virtually the entire 22-million teu throughput is in Southern China, Macau and Hong Kong. This is not surprising as 40% of the total 2011 terminal demand was in Asia. Among the bigger players Dubai-based DP World, has 40% of its capacity in the Middle East; Singapore-based PSA has 78% in the Far East/Southeast Asia; and APM (AP Moller/Maersk’s terminal company) is split approximately 28% in both Europe and Far East/Southeast Asia. Market share is often similarly reflected. For example, PSA dominates Southeast Asia (36% market share) and DP World the Middle East (43% market share).
Growth Strategies and M&A
While HPH growth strategy starts with the HPH Trust IPO rival APM terminals is taking another approach. APM Terminals is, as they said in the AP Moller 2011 annual report, “focusing on growth markets.” For APM and other TOs, securing terminal leases and acquisitions in emerging markets is the new gold rush. Not much growth is expected in the North American and European ports, while emerging markets are expected to experience double-digit increases. A cursory view of APM’s recent ventures illustrates the strategy.
• APM Terminals took over operations in port of Callao, Peru
• Acquired a controlling interest of the Black Sea port of Poti, Georgia;
• Signed a concession agreement to build and operate the new Moin container terminal on the Caribbean coast of Costa Rica;
• Awarded the concession to build and operate a new container terminal at the port of Lazaro Cardenas, Mexico;
• Awarded the concession to operate the Skandia Container Terminal in Gothenburg, Sweden.
It’s not just APM following this strategy. China Merchants Holdings (International) Co. acquired a 50% stake in Thesar Maritime Ltd., which owns a 35-year concession to operate and develop a container terminal in Lome, Togo.
TIL (Terminal Investment Ltd) a Dutch-based company closely linked to MSC, bought 20% of SP Container Terminal Ltd, located in St. Petersburg Russia, from UCL Holding.
Ports America the largest terminal operator in the US, spent $45 million to buy an equity state KMCT (Kao Ming Container Terminal) located in Kaohsiung, Taiwan. The terminal was previously fully owned by Taiwanese carrier Yang Ming Marine Transport Corp and is the company’s first foray outside the Americas.
This was not the first US terminal operator to look to the Far East. Rival SSA (a Carrix/Goldman Sachs-49%) West Coast terminal group had already expanded in Vietnam.
The Philippine-based ICTSI (International Container Terminal Services Inc.) has nearly an entire portfolio (with the possible exception of the lone US facility in Portland Oregon) in emerging markets. Recently, the TO acquired a 35% holding in Karachi-based Pakistan International Container Terminal Ltd, adding to its portfolio that extends over 17 countries.
IPOs On The Horizon?
Perhaps the most interesting development was occurred in March when, Terminal Link, CMA CGM’s terminal operations arm, sold 50% of the company’s shares in Malta Freeport to Yildirim, a Turkish venture capital group for Euro 200 million.
In 2010, Yildrim invested $500 million in CMA CGM to bolster the then floundering French ocean carrier. In June the Group exercised an option to buy another 10% stake bringing the total to 30%.
Robert Yuksel, president of Yildirim, outlined their investment strategy at a Marine Money conference in June, “Our main investment strategy is to exit end of investment period of 5-years by either going to IPO when economic conditions enable or to sell to Saade Family [principal owners] or to a third party.”
According to reports, CMA CGM has been in discussions with French sovereign wealth fund Fonds Stratégique d'Investissement, but does not exclude the option of asking Turkish group Yildirim for a further cash injection of $500 million in return for a 20% stake.
Yildirim has an extensive port management business all its own (for example, 54% interest in the Turkish port of Gemport).
CMA CGM has indicated Terminal Link is up for sale (or at least 49%) and the rumored buyer is in the Far East, which conjures up visions of well-heeled groups like HPH, PSA and China Merchants. However it isn’t out of the question that Yildirim buys out Terminal Link and eventually spins off an terminal IPO.
Another group that could easily go public in the near future is TIL (Terminal Investment Ltd.). While the TO’s exact nature of the relationship with MSC is unclear [i.e. Aponte family investment], the overlap of business interest with the mega carrier is obvious. In the interest of raising the capital to expand and compete with other terminal groups, an IPO would be a strategy for the company to pursue.
Ports America, which is owned by Highstar Capital, a venture capital firm with a wide range of infrastructure investments, is also a candidate for an eventual IPO. Ports America, the largest terminal operator in the US, grew largely through M&A. It’s a formidable platform and an IPO would offer the TO an opportunity to compete on a global basis.
Port America’s main North American rival is SSA Marine, which is reportedly owned 51% by Seattle-based Carrix Companies [Smith/Hemingway family] and 49% by Goldman Sachs Infrastructure Partners (a 2007 investment). The company has been successful in expanding into the Latin American market and Vietnam, fitting in with the strategy of investing in emerging markets. In July, Carrix announced that Knud Stubkjær joined the company as chief strategic officer and chief executive officer. Stubkjær spent 30-years working for A.P. Moller-Maersk (APMM), including serving as the CEO of Maersk Line. More recently, Stubkjær worked with Hamburg-based E.R. Capital Holding, as a partner and CEO of its wholly-owned subsidiary E.R. Schiffahrt, one of the world's largest boxship charterers. Goldman Sachs has a history of launching IPOs and with the new management an IPO of one or all the parts of Carrix could be in the cards, when the timing is right.
Although the Moller-Maersk Group has shown no real indication of wishing to spin off APM as a separate unit (it already functions that way under the corporate umbrella) the strategy could make sense in the future. APM is acquisition minded and an IPO might both fund future expansion and create an institution with an identity one more step removed from the parent making it easier to up the percentage (close to 50% now) of non-Maersk calls at APM terminals.