China Merchants, partner boost Shenzhen Port Holdings
China Merchants, owner of stakes in the country's five largest ports, will pay HK$3.17 billion ($408 million) to Swire Pacific Ltd. and a unit of DP World for their holdings in the terminals, the Hong Kong-based company said in a statement today. Modern Terminals will pay China Merchants the same amount for a stake in a venture that will own the terminals.
Shenzhen Port, in China's Pearl River delta manufacturing center, has handled 13 percent more cargo this year, outpacing global trade growth. At least $20 billion of terminals have changed hands worldwide this year, including DP World's $6.8 billion purchase of Peninsular & Oriental Steam Navigation Co.
Companies are betting on increasing trade demand in China, the world's manufacturing hub,'' said Ingrid Wei, a Shanghai- based UBS AG analyst, who rates China Merchants buy.'' It's a long-term investment, which will pay off given the booming trade.''
China's exports surged 32.8 percent last month from a year earlier, while imports rose 18.3 percent, driving up demand for shipments at Shenzhen and other ports. About 90 percent of world trade moves by sea.
China Merchants' shares rose 3.5 percent to HK$30.00 today in Hong Kong. The stock has gained 78 percent this year. Shares of Hong Kong-based Wharf (Holdings) Ltd., which controls Modern Terminals, were suspended from trading.
Shekou Terminals
The new venture will take control of the Shekou container terminals, which handle about 13 percent of Shenzhen's total container volume. The terminals currently have six berths, with three more due to open by the end of 2009.
China Merchants will eventually own 80 percent of the Shekou container venture with Modern Terminals holding the rest, it said. The company now holds about half of the first two phases of the terminals, as well as all of the third phase.
Modern Terminals will inject its stakes in the first two phases into the venture. Should the formation of the venture fail, China Merchants will buy Modern Terminal's Shekou assets for HK$792 million, it said.
DP World
China Merchants will buy Swire Pacific's terminal stakes for HK1.39 billion. It will pay P&O Dover (Holdings) Ltd., a unit of DP World, HK$1.78 billion for its stakes.
DP World will re-invest the proceeds in assets in the region,'' Peter Wong, the port operator's Asia-Pacific Managing Director, said in an e-mailed statement.
China Merchants is paying the equivalent of 15 times 2006 estimated earnings for the stakes, according to Credit Suisse Group. That compares with a price of more than 20 times earnings that DP World paid for P&O in November, it added.
The key question is why Swire and Dubai are willing to sell so cheap,'' the bank's Hong Kong-based analysts Peter Hilton and Karen Chan wrote in a note to clients. They may feel the outlook for western Shenzhen ports is no longer attractive, capped by the new capacity in the area.''
The first phase of the 7.1 billion yuan ($910 million) Da Chan Bay Terminal One, controlled by Modern Terminals, is due to begin operations in Shenzhen at the end of next year. A venture including Cosco Pacific Ltd. is also spending 4 billion yuan building a six-berth facility in the nearby city of Nansha.
Shanghai Port
China Merchants bought a stake in Shanghai, the country's busiest container harbor, last year. It also plans to buy HK$1.63 billion of assets in Shenzhen, including stakes in terminal ventures, from its parent, it said in a statement on Nov. 16.
Shenzhen is on course to surpass neighboring Hong Kong, the world's second-busiest container port, as its traffic is growing more quickly. Throughput in Shenzhen rose 13 percent to 15.2 million 20-foot containers in the first 10 months of the year from a year earlier, the local government said. Hong Kong's traffic rose 3.8 percent to 19.5 million boxes in the period, according to a revised estimate released by the port's development council today.
Trucking a 20-foot container from a factory in southern China and shipping it from Hong Kong costs $333 more on average than moving it out of Shenzhen, according to a study commissioned by the Hong Kong government.
Port operators have increased their investment in terminals to add capacity as trade increases. Global trade will probably grow 7.6 percent next year, the International Monetary Fund said.
PSA International, the world's second-largest container port operator, in April agreed to buy a 20 percent stake in terminal assets owned by larger rival, Hutchison Whampoa, for $4.4 billion.
Goldman Sachs Group Inc.-led investors bought Associated British Ports, the U.K.'s biggest port owner, for 2.8 billion pounds ($5.5 billion) in June. Ontario Teachers' Pension Plan, Canada's third-largest retirement-fund manager, last month agreed to buy four terminals in North America for $2.35 billion from Orient Overseas (International) Ltd.