WHEN Dubai’s DP World agreed to buy the global terminals business of US railroad operator CSX for $US1.15 billion ($1.47 billion) 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 pound stg. 3.92 billion ($9.8 billion) takeover this year of British container ports and ferries operator P&O at 19 times EBITDA.
Last week, the Ontario Teachers’ Pension Fund announced that it would pay $US2.35billion for the container terminals business of Orient Overseas International, the Hong Kong-based parent of container shipping line OOCL, a valuation of more than 20 times EBITDA.
There have been fierce contests to buy other assets, including Britain’s PD Ports and Associated British Ports, which was bought by a consortium led by US investment bank Goldman Sachs in July for pound stg. 2.8billion, 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 counter-bid 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.”
Not everyone agrees prices can continue at their present level. 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.