NEW ORLEANS: Infrastructure funds are showing renewed interest in port public-private partnerships, including untraditional deals that finance harbor dredging or underwrite the purchase of entire ports. PPPs were a top discussion topic at this week’s annual conference of the American Association of Port Authorities. “The changes we’ll see in 2016 and 2017, I think, will be absolutely huge,” said Jeffrey D. Holt, managing director of infrastructure banking at BMO Capital Markets.
Container terminals’ valuations have dropped from the “insane” market of a decade ago, when Maher Terminals was sold for a reported 42 times earnings, to today’s multiples of about 20 times earnings, he said. This has whetted the appetite of Canadian pension funds and other investment groups seeking reliable, long-term revenue streams. “Return on capital has been quite low for the ports, but they’re still incredibly valuable,” Holt said.
Ports and terminal operators, meanwhile, are hungry for capital to support facilities needed to attract and keep customers. “It is very difficult for port authorities to grow and grow on the basis of their constrained credit,” Holt said. The South Carolina Ports Authority, an operating port, considered privatization of a container terminal being developed at the former Charleston Navy Base, but ultimately decided it could achieve an adequate return on investment without privatization.
The most dramatic port privatization deal may be a consortium of five investments groups’ impending purchase of Australia’s Port of Melbourne for A$9.7 billion (US$7.3 billion). With annual volume of 2.6 million 20-foot-equivalent units, Melbourne is Australia’s largest container port. Holt doesn’t expect similar deals in the US market anytime soon. However, he said port authorities should follow industry developments and understand the value of their franchise well enough to make informed decisions.“Understand the value of your own gateways,” he urged port officials. “Do the work to understand what your leases are worth and what your lease extensions are worth, so that you don’t give those away too cheaply.”
Terminals and other landside facilities aren’t the only port assets that have attracted investor attention. Steve A. Steckler, chairman of IMG Capital, said ideas are being kicked around for public-private partnerships to finance harbor deepening and maintenance. He said the Water Resources Reform Development Act of 2014 and the Water Infrastructure Finance and Innovation Act of 2015 provided flexibility to use public-private partnerships for navigation improvements and maintenance.
Such deals could be tied to ship- and volume-based landing fees, rent from tenant improvements, the capture of value from land improvements resulting from dredging, and capture of the increased value of portwide improvements. “There are a number of different ways that you can fund improvements that you might normally have to wait in line for at the Army Corps of Engineers,” Steckler said. Instead of waiting years for corps funding, ports “could use the private contributions as your local match.”
