China Merchants slows down on big overseas takeovers

15 February 2019 - 12:00 am UTC

China Merchants Port is slowing down marginally on its overseas investments for 2019 as the company is now focusing more on post-merger integration and optimisation of assets.

The state-owned Chinese port operator has been actively exploring both brownfield and greenfield deal opportunities in Southeast Asia since last year. The company will not rule out minority stake purchases should good opportunities arise, a spokesperson told Inframation.

“The last year has seen the company complete the takeover of Port of Newcastle in Australia and TCP in Brazil,” she said. “We want to put good efforts on the post-merger integration and make sure the assets perform well,” she added.

The Chinese port giant has over two dozen potential deals worldwide to consider on a regular basis. It normally takes two to three years for a “significant transaction”, such as the TCP acquisition, to be settled.

“While we tend to make controlling stake purchases, it does not mean that we are not doing small deals with minority stake acquisitions as long as they can generate good returns,” she said. The firm is open to teaming up with both institutional investors, such as infrastructure funds, and strategic investors, similar to other Chinese state-owned firms. The minimum IRR the company looks to secure is between 10%-12%.

Southeast Asia and Africa are two regions where China Merchants is monitoring closely for investments this year. “But we tend to focus on the so-called ‘gateway ports’ in key locations that can serve as regional or international transport hubs,” said the spokesperson.

China Merchants, which aims to build up a portfolio of assets that are spread organically along the Belt and Road, owns 11 ports across southern, eastern and northern China, two in Hong Kong and Kaohsiung, and over seven in Europe, Africa, South Asia, Australia and Americas.

The Hong Kong-based port operator is among over 30 firms that have shown interest in a PPP to build and operate a container terminal at Thailand’s Laem Chabang port that is estimated to cost at least THB 30bn (USD 959m). Other interested Chinese companies include CCCC and its subsidiary China Harbor Engineering as well as CRCC.

Also eyeing strategically-located ports in Southeast Asia is COSCO Shipping Ports. It highlighted the region as the top target market for asset purchases followed by Africa and Latin America.

The increasing interest in Southeast Asia, partly driven by ongoing Sino-US trade frictions, has already led to higher valuation of some port assets, the spokesperson acknowledged. “The long-term prospects are bright, and it really is the timing that is important,” the spokesperson further noted.

The company registered a year-on-year net profit rise by 73% to HKD 5.45bn (USD 800m) for 1H18, assisted by a 32% surge in revenue for the period.

 

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