APAC: COSCO Shipping Ports expects revaluation in global port asset prices

28 August 2018 - 12:00 am UTC

COSCO Shipping Ports(CSP) thinks a “repricing” of overseas port assets is on the cards as it scours Latin America, Southeast Asia and Africa for targets. 

The Chinese state-owned port operator, which owns the Noatum Port Terminal in Spain and Piraeus Container Terminal in Greece, maintains a “proactive attitude” towards overseas port assets investments, vice-chairman and managing director Zhang Wei told reporters in a post-earnings press conference. 

But COSCO may remain on the sidelines for now as it awaits a revaluation of port assets amid heightening global trade tensions.

“We are still evaluating whether trade tensions will have an impact on sellers’ pricing of port assets, though we have not seen any impact as yet,” said Zhang.

CSP has targeted Latin America, Southeast Asia and Africa as key markets for future port project investments. The state-owned enterprise is one of the most aggressive Chinese buyers of overseas ports that span Southeast Asia, the Middle East, Europe and North America. 

“Our investment strategy is basically in line with current market strategy and requirements of Ocean Alliance members,” Zhang said, referring to the vessel- and slot-sharing agreement signed in 2016 among the world’s four leading shipping lines CMA CGM, China COSCO Shipping, Evergreen Marine and Orient Overseas Container Line.

The alliance network covers the Asia-Europe, Asia-Mediterranean, Asia-Red Sea, Asia-Middle East, Trans-Pacific, Asia-North America East Coast, and Trans-Atlantic trades.

The company’s interest in Southeast Asian port assets was partly driven by expectations for a rise in long term international manufacturing and trade activity across the region because of the escalating trade dispute between China and the US.

While CSP has been looking at ports in Brazil and Argentina during its global asset buying spree, it sees some assets as a bit “overvalued”, executive director Deng Huangjun told Inframation. 

“Some of them are not reasonably priced,” Deng said adding that the minimum internal rate of return the Chinese port operator is seeking should be “generally above 10%.”

Investment approach 
CSP will opt for a mix of greenfield and brownfield investments in port terminals and try to strike a balance between the two, Zhang said.

“Greenfield [projects] are cheaper and you have more flexibility regarding cost control as you develop the projects yourself,” he said. “On the other hand, greenfield [projects] normally have a long investment cycle.”

The port operator intends to partner with the local port authorities, as well as companies from China and overseas for major port deals.

But for deals valued at around several hundred million US dollars, the state-owned firm might also opt to invest independently, Deng told Inframation.

In July, CSP agreed to sell a 10% equity stake it had in Zeebrugge Terminal in Belgium to CMA CGM, following a 5% stake sale to the port authority of Zeebrugge in May.

The Chinese company plans to develop the terminal, which it took over last year, into a major hub port in Northwest Europe.

Abu Dhabi Terminal, the firm’s first greenfield subsidiary, will officially commence operations in the first quarter of 2019 with capacity of 2.5m TEU annually.

First half 2018 earnings 
The company posted a better-than-expected 70% year-on-year increase in adjusted net profit to USD 169m for the first half of 2018, up from last year’s USD 99.3m profit if excluding one-off items from the Qingdao Port International transaction. The figure was helped by a 80% jump in revenue to USD 495.5m. CSP saw total throughput climb 27% to 56.7m TEU versus the year ago period.

CSP is the port offshoot of Chinese state-owned shipping conglomerate COSCO. As at 31 March 2018, it operated and managed 270 berths at 35 ports worldwide, with a total annual handling capacity of about 103.72m TEU.