Box terminal stake sales show carriers need greater cash reserves CONTINUING asset sales by carriers indicates that confidence is not running high and recent container terminal stake sales show that shipping lines need greater cash reserves to see them through a financial drought ahead, said a Drewry Maritime Research report.
CMA CGM and MSC's terminal stake sales, on top of Yang Ming's sale of an additional 30 per cent of its container terminal in Kaohsiung in December, suggest more belt tightening is expected, said the London-based research body. The way that freight rates and cargo growth are currently moving in the big transpacific and Asia-Europe trade lanes makes it seem a prudent move, said the Drewry report.
Global Infrastructure Partners (GIP) is paying US$1.9 billion for a 35 per cent stake in Terminal Investment Limited (TIL), the terminals portfolio associated with MSC, suggesting an overall valuation of around $5.4 billion for a portfolio that handled 12.1 million TEU in 2011.
China Merchants Holdings International (CMHI), meanwhile, is paying around $500 million for a 49 per cent stake in CMA CGM's Terminal Link (TL), equating to an overall value of around $1 billion for a portfolio of 5.5 million equity TEU in 2011.
On a general basis, it is clear that valuations for port and terminal assets are currently in the range of 10-12 x EBITDA - a far cry from the heady days of the mid-2000s when multiples in excess of 20 x EBITDA were common for port assets. Nevertheless, the recent deals suggest that both the TL and TIL portfolios are profitable businesses - investors would not be paying hard earned money for them were they not.
This is significant, given that given that the terminal portfolios of shipping lines commonly have their origins as cost centres rather than profit centres. Assuming that the TIL and TL deals have been transacted around the current market price, it suggests that CMA CGM and MSC have been able to sell at a relatively good time - the days of 20 x plus multiples for valuations are unlikely to return for a long time - if ever.
Carriers will remain under significant pressure to raise cash in 2013 and beyond due to the challenging conditions in their core activity. This will increase their focus on what to do with non-core activities and assets such as terminals.
Selling stakes in their terminals will surely be part of achieving cash generation for some. For others, the ongoing cash generation from continuing to own and operate terminals may be seen as a better solution to stabilise results.
CMA CGM and MSC's terminal stake sales, on top of Yang Ming's sale of an additional 30 per cent of its container terminal in Kaohsiung in December, suggest more belt tightening is expected, said the London-based research body. The way that freight rates and cargo growth are currently moving in the big transpacific and Asia-Europe trade lanes makes it seem a prudent move, said the Drewry report.
Global Infrastructure Partners (GIP) is paying US$1.9 billion for a 35 per cent stake in Terminal Investment Limited (TIL), the terminals portfolio associated with MSC, suggesting an overall valuation of around $5.4 billion for a portfolio that handled 12.1 million TEU in 2011.
China Merchants Holdings International (CMHI), meanwhile, is paying around $500 million for a 49 per cent stake in CMA CGM's Terminal Link (TL), equating to an overall value of around $1 billion for a portfolio of 5.5 million equity TEU in 2011.
On a general basis, it is clear that valuations for port and terminal assets are currently in the range of 10-12 x EBITDA - a far cry from the heady days of the mid-2000s when multiples in excess of 20 x EBITDA were common for port assets. Nevertheless, the recent deals suggest that both the TL and TIL portfolios are profitable businesses - investors would not be paying hard earned money for them were they not.
This is significant, given that given that the terminal portfolios of shipping lines commonly have their origins as cost centres rather than profit centres. Assuming that the TIL and TL deals have been transacted around the current market price, it suggests that CMA CGM and MSC have been able to sell at a relatively good time - the days of 20 x plus multiples for valuations are unlikely to return for a long time - if ever.
Carriers will remain under significant pressure to raise cash in 2013 and beyond due to the challenging conditions in their core activity. This will increase their focus on what to do with non-core activities and assets such as terminals.
Selling stakes in their terminals will surely be part of achieving cash generation for some. For others, the ongoing cash generation from continuing to own and operate terminals may be seen as a better solution to stabilise results.