“Ports are still a good business and a cash generator for Hutchison. It’s just that the golden days of the port business are behind us,” said CLSA analyst Daniel Schutte
At one time, the port assets of Hutchison Whampoa were the crown jewels in the business empire of billionaire Li Ka-shing. Today, those assets seem to be losing their lustre.
Ports and related services contributed almost half earnings before interest and tax (Ebit) for Hutchison Whampoa a decade ago, which was then in the middle of a frantic and uncertain foray into the telecoms business.
The South China Morning Post has reported Li is mulling the possible sale of a 40 per cent stake of Hutchison Port Holdings (HPH) to a quartet of state-owned mainland China companies. If it goes through, the move would underscore Hutchison’s recent tactic of monetising port assets to free up capital to support other high-growing businesses.
“Ports are still a good business and a cash generator for Hutchison. It’s just that the golden days of the port business are behind us,” said CLSA analyst Daniel Schutte.
With that gradual decline in mind, Hutchison sold a 20 percent stake in HPH to PSA International, the Singaporean state-backed port operator, in 2006. Hutchison netted HK$24.38 billion from the deal to feed the 3G business, which was then haemorrhaging tens of billions of dollars.
In March 2011, Hutchison further diluted its port interest in 2011 through the US$5.45billion public offering of Hutchison Port Holding Trust (HPHT), which holds the Pearl River Delta container terminal assets that accounted for 30 per cent revenue and half of earnings before interest, tax, depreciation and amortisation (Ebidta) for HPH.
“When Li floated HPHT in 2011, many of us thought it was a sign that he no longer was optimistic in the prospects of the port business,” said a former HPH employee.
HPH is the worlds’ largest port operator by total throughput, but has been overtaken by PSA when the volumes are measured in proportion to equity stakes after the sale to PSA in 2006, according to UK maritime consultancy Drewry. The contribution of Hutchison has been on a steady retreat despite the sector generating double-digit growth and more than 30 per cent Ebidta margins.
After all their recent acquisitions, Hutchison Whampoa’s net gearing (net debt to net total capital) ratio will rise to 24 per cent, estimated CLSA analyst Samuel Hui.
“While this remains healthy, it leaves limited headroom for further acquisitions in the near future before reaching the [self-imposed] 25 per cent cap. We believe the group could raise funds from the issuance of perpetual bonds or the sale of stakes in existing businesses before further acquisitions,” Hui wrote in a report.
Hutchison’s port portfolio may be attractive for mainland firms China Merchants Holdings (International) (CMHI), Cosco Pacific, China Shipping Terminal Development (CSTD) and State Development & Investment Corporation, who are yearning to extend their overseas footprint and snap up port assets which are of strategic importance to Beijing.
CMHI, controlled by state conglomerate China Merchants Group, has been one of the most aggressive buyers in the global port industry after the 2008 financial crisis, notably with its €400 million acquisition in 2013 of a 49 per cent stake in Terminal Link, a port company affiliated to France’s CMA CGM, the world’s third-largest container shipping line. The deal spread CMHI’s foothold in eight countries across Europe, the US, Africa and Asia.
Cosco Pacific, a subsidiary of China Ocean Shipping Group, is best known for its investment in Piraeus Container Terminal in Greece, which revived its waterfront as a transport hub in the Mediterranean.
But these state-owned conglomerates will not just pay whatever Li is looking for.
“The stereotype on state-owned firms is they don’t care much about assets valuation [when considering an acquisition]. But both CMHI and Cosco Pacific are very sensitive on pricing. They’ve passed on a lot of deals in the last two years because of costs,” said Jon Windham, Asia ex Japan transport and infrastructure analyst at Barclays Capital.
“There aren’t many good assets available for sale in the port spectrum. Most good assets are owned by government or pension funds which have no interest to liquidate them and are willing to hold onto the long-term yields,” he said. “So anyone who’s aggressive about getting into the market has to pay high multiples.”
HONG KONG's Hutchison Port Holdings Trust (HPH Trust) appeared to go into the red in the last quarter of 2014 due to a HK$19 billion (US$2.45 billion) impairment of goodwill, the first quarterly loss the trust has suffered since listing in 2011
HONG KONG's Hutchison Port Holdings Trust (HPH Trust) appeared to go into the red in the last quarter of 2014 due to a HK$19 billion (US$2.45 billion) impairment of goodwill, the first quarterly loss the trust has suffered since listing in 2011, Reuters reports.
The nature of the "goodwill" was said to be a voluntary "write-down of Hong Kong terminal assets, amid mounting concerns that its multi-billionaire owner Li Ka-shing, is retreating from Hong Kong," said the South China Morning Post.
HPH Trust, the Hutchison Whampoa subsidiary that owns Pearl River Delta container ports, said the one-off, non-cash impairment was recognition that Hong Kong operations were "adversely impacted by the uncertainties in the global economy."
Net profit fell one per cent year-on-year in 2014 to HK$2,981.7 million, because of a tax increase, though unitholders earned eight per cent more, the company said.
But a loss of HK$16,018.3 million was reported when including the goodwill impairment in the financial reporting, while the loss attributable to unitholders was HK$17.19 billion.
The trust booked a net loss of HK$1.61 billion for the quarter, and a full-year loss of HK$17,192 million, said Hutchison.
Hutchison Port owns interests in container port assets in Hong Kong and Shenzhen and is backed by Hong Kong's Cheung Kong (Holdings) Ltd.
Compared with 2013, the throughput at HPH Trust's deep-water ports in 2014 increased six per cent, in which the combined throughput of Hongkong International Terminals (HIT) and Cosco-HIT and Asia Container Terminals (ACT) grew five per cent.
In Shenzhen, throughput for Yantian International Container Terminal (YICT) grew eight per cent.
"While outbound cargoes to the US showed an upward trend, EU volumes remained soft. The throughput growth was mainly driven by transshipment, US and empties, but was partially offset by weaker intra-Asia cargoes," the company said.
Separately Hutchison is in talks with a consortium of mainland Chinese companies to sell a HK$160 billion stake in its ports business, reported the SCMP.
The paper, citing a person with knowledge of the situation, said Hutchison was negotiating with China Merchants Holdings (International), state-owned Cosco Pacific, China Shipping Terminal Development and State Development & Investment Corp to sell a 40 per cent stake.
Asked about the report, a Hutchison spokesman said: "The rumour is unfounded." China Merchants, Cosco Pacific and China Shipping could not be reached for comment.
Net profit fell one per cent year-on-year in 2014 to HK$2,981.7 million, because of a tax increase, though unitholders earned eight per cent more, the company said.
But a loss of HK$16,018.3 million was reported when including the goodwill impairment in the financial reporting, while the loss attributable to unitholders was HK$17.19 billion.
The trust booked a net loss of HK$1.61 billion for the quarter, and a full-year loss of HK$17,192 million, said Hutchison.
Hutchison Port owns interests in container port assets in Hong Kong and Shenzhen and is backed by Hong Kong's Cheung Kong (Holdings) Ltd.
Compared with 2013, the throughput at HPH Trust's deep-water ports in 2014 increased six per cent, in which the combined throughput of Hongkong International Terminals (HIT) and Cosco-HIT and Asia Container Terminals (ACT) grew five per cent.
In Shenzhen, throughput for Yantian International Container Terminal (YICT) grew eight per cent.
"While outbound cargoes to the US showed an upward trend, EU volumes remained soft. The throughput growth was mainly driven by transshipment, US and empties, but was partially offset by weaker intra-Asia cargoes," the company said.
Separately Hutchison is in talks with a consortium of mainland Chinese companies to sell a HK$160 billion stake in its ports business, reported the SCMP.
The paper, citing a person with knowledge of the situation, said Hutchison was negotiating with China Merchants Holdings (International), state-owned Cosco Pacific, China Shipping Terminal Development and State Development & Investment Corp to sell a 40 per cent stake.
Asked about the report, a Hutchison spokesman said: "The rumour is unfounded." China Merchants, Cosco Pacific and China Shipping could not be reached for comment.
The British port of Felixstowe is one of Hutchison's 52 ports
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