Canadians sail in for Teesside Port deal

Oct 8 2009 By Jez Davison, The Journal

PD Ports is to be bought by a Canadian asset management company for a nominal sum. The move is part of an Australian $1.5bn-plus recapitalisation by port owner Babcock & Brown Infrastructure (BBI), which has been under pressure to sell assets to reduce its debt pile.

Under the terms of the recapitalisation, - which is subject to shareholder agreement - Toronto-based Brookfield Asset Management will buy 100% of BBI’s interest in PD Ports and repay £100m on behalf of the Teesport operator. According to PD Ports’ latest filed annual accounts, to the end of June 2008, net borrowings totalled around £360m.

The Canadian-based firm will also take a 49.9% stake in BBI’s Dalrymple Bay coal exporting terminal.

This morning PD Ports said it would welcome any deal that secured its long-term future, which will include increasing container capacity and gaining a foothold in the wind-farm market.

Group development director Martyn Pellew said: “It would be useful and helpful to have a more secure future.

“Talks about a potential sale of the business has had an unsettling effect on existing customers and prospects for business.”

He said it was unlikely that Brookfield would look to make a quick sale and profit on the port.

“They (Brookfield) are likely to take a long-term outlook as they are deliberately investing in infrastructure.”

Brookfield has more than $80bn of property, renewable power and infrastructure assets under management, although it is understood the firm has little experience in European port operations.

Analysts say the port represents a sound long-term investment, especially now with the decline in freight traffic volumes depressing asset values. Teesport has a broad traffic portfolio.

Year-on-year inward freight traffic at Teesport and Hartlepool fell by 33% in the second quarter, according to Government figures. Nationally traffic was down by 13% in the second quarter, while container traffic fell 15%.

Paul Mankin, head of the corporate finance team at PricewaterhouseCoopers, said: “Trading at ports generally has been adversely affected by the credit crunch - particularly ports with a heavy reliance on container volumes.

“But PD Ports has a well-balanced portfolio; it does a lot more than containers.”

He said PD Ports was worth far more than the “nominal sum” offered by Brookfield as any deal would involve the new owner taking on some or all of port’s debt.