Hutch to use IPO funds for port expansion

John Meredith, managing director of Hutchison Port Holdings, reckons that ports are ideal assets for a business trust and added that Hutchison would use the funds to be raised by the business trust IPO in Singapore to expand ports agressively.


"We are chasing ports in four countries," Meredith says. "Some are completely greenfield, where you have to go in and dredge and reclaim the land. Others are semi-built and just require modernisation — new equipment, new systems — and, structurally, the port is there."


"Even in a downturn, the port industry did not suffer anything like the shipping companies did," he said, during a press conference, reported The Edge.


"Ports are very resilient. They can take a lot of knocks. In the 40 years we've been operating, we've never had a year in which it's been negative growth — except in 2009, and it recovered very quickly."


Hutchison Port Holdings is part of Hong Kong billionaire Li Ka-shing's Hutchison Whampoa group, which said last month that it planned to spin off its existing and future deep-water container ports in Guangdong, Hong Kong and Macau into a Singapore-listed business trust. The IPO is expected to raise some US$6 billion, a record for the Singapore market. Hutchison Whampoa will retain a 25 percent interest in the trust.


With no listing documents filed yet, however, Meredith was unable to offer any further information on the upcoming IPO. But he had plenty to say about Hutchison Port Holdings, the largest port operator in the world, with an annual throughput of 65.3 million TEUs.


"You have something physical where you can go and kick the tyres. You have a hard asset, and it's a good industry," he says, adding that the company's main assets are in Hong Kong, Guangdong and Panama.


So, why is Hutchison Port Holdings planning to spin off some of its key assets? For one thing, building a port is an expensive exercise, frequently costing up to $1 billion. And, the company is in expansion mode now.


Besides requiring large amounts of cash to build, developing a new port often gets bogged down in governmental and legal issues, underscoring the need for an amply capitalised balance sheet. Meredith cites his company's efforts to expand in Mexico as an example.


"We gave some of our managers an exercise of finding a location in Mexico that could be linked by rail to the [US border]," he says, adding that the new port would be an alternative to Los Angeles. "Unfortunately, the negotiations became mired in legality. We called it Project Thomas, after Thomas the tank engine. It would have been $5 billion and a joint venture with the US."


Meredith says the project is still pending. Hutchison Ports Holdings already operates four ports in Mexico.


Apart from investing in new ports, Meredith is also focused on organic growth. "Every year, we increase our capacity without [adding] a location," he says. That involves investment in modern equipment to make its ports more productive.


"We buy new systems — GPS, advanced computer systems. We are the world's largest purchaser of marine dock equipment. Those cranes you see down at PSA, we actually have 500 of those around the world." Meredith says the size of its purchases enables it to get a better deal on port equipment than most other port operators.


Hutchison Port Holdings has interests in 51 ports across 25 countries. But, its assets closer to home will be of most interest to investors awaiting the listing of its new business trust.


In Hong Kong, the company operates Hong Kong International Terminals — owner and operator of Terminals 4, 6, 7 and two berths in Terminal 9 at Kwai Tsing in Hong Kong — as well as Cosco-HIT, owner and operator of Terminal 8 East, also at Kwai Tsing. In 2005, PSA International bought a 20 percent stake in both HIT and Cosco-HIT for US$925 million. That's likely to see PSA becoming a key investor in the new business trust.
(Source:http://www.cargonewsasia.com)