WASHINGTON: One of the leading contenders for the $6 billion-plus Port of Melbourne auction has dropped out of the race ahead of first-round bids. As Street Talk revealed on Wednesday, Australian infrastructure investor Hastings Funds Management and its partners have notified lenders that they are not proceeding with their offer.
Hastings and its partners – Kuwait-backed Wren House Infrastructure and Canadian asset manager Alberta Investment Management Corporation – were positioned as one of the leading potential buyers for Australia’s largest container terminal. The group formed more than 12-months ago and had hired investment banks RBC Capital Markets and UBS to work on the offer.
It’s understood the consortium told lenders they held some concerns around the regulatory regime governing the sale, among other reasons. The decision was said to be a consortium decision, and not led by any one member. It comes as bidders consider how to value Port of Melbourne in light of the regulatory environment, which has proved challenging as seen by the drawn-out and very much political debate earlier this year.
As bidders and their lenders sink their teeth into the sale documents, potential buyers are finding the port is quite heavily regulated, which will impact future returns. With usage charges capped, stability of cash flows for the new owner will be a function of volume through the port. And unlike a regulated utility where tariffs increase to offset any volume decline, the new port owners will bear the volume risk in full.
Forecasting volume at the port is also not easy and bidders are trying to get comfortable with container growth forecasts and the long-term outlook for agriculture and petroleum volumes. As for Hastings, it is expected to rebound quickly and is said to be preparing for NSW power distribution company Endeavour Energy’s sale process and WA’s Port of Fremantle’s auction [should it happen] in coming months.
