Infrastructure Presentation
- 1. Produced by Amar Ehsan, CFA International Infrastructure Opportunities Increasing Seaborne Trade and the need for “Short Sea” Services
- 2. Produced by Amar Ehsan, CFA Nominal GDP (By Exp.) Per Capita in Current USD -40.00% -30.00% -20.00% -10.00% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Growth(%) United States Brazil Russian Federation India China Growth Rates of Merchandise Imports (15.00) (10.00) (5.00) - 5.00 10.00 15.00 20.00 25.00 30.00 1980 - 1985 1990 - 1995 2000 - 2005 Growth(%) United States Brazil India China Source: UN Conference on Trade and Development (UNCTAD) “BRIC” Growth “BRIC” Growth
- 3. Produced by Amar Ehsan, CFA
- 4. Produced by Amar Ehsan, CFA The strong demand for container ships and bulk carriers by BRIC combined with the age of the existing fleet has sparked rapid investment in new ships that are expected to come on stream in 2008- 2011. There is a strong tendency towards building larger vessels due to the unit cost of transportation and economies of scale. This trend can also be seen in the aerospace industry with Airbus introducing the huge A380. This trend is likely to continue due to rising oil prices and environmental concerns putting more pressure on shippers to be more cost-efficient in fuel usage. The first opportunity created here is within the trans-shipment and coastal feeder space: SMALLER VESSELS THAT SERVE “SHORT SEA” ROUTES AND COASTAL WATERWAYS
- 5. Produced by Amar Ehsan, CFA 20%$2,050$2,075$6,900$12-15mm 2500-3000cbm LNG/LPG Carrier 23.75%$2,650$1,900$8,750$15-20mm 600-1000 TEU Boxship (Coastal Feeder) 48.05%$4,150$7,500$25,000$25-30mm 20,000 Dwt “Handysize” Dry Bulker 3 Year ROA GearingVessel size Daily Opex AVG. Current (Est.) Daily Charter Rate Capital Cost Vessel Type * Assume 90% Utilization for vessels, 65% Leverage @ LIBOR + 3% and technical vessel mgmt of $750-1000 per day
- 6. Produced by Amar Ehsan, CFA International Infrastructure Opportunities Increasing Port Congestion and the need for upgrading facilities
- 7. Produced by Amar Ehsan, CFA The strong demand for larger container ships and larger bulk carriers has an impact on Port Infrastructure: • As ships increase in size, the port infrastructure needed to support them (such as cranes, shipping berths, terminal services and storage) will have to be upgraded or replaced. • For most international freight, the Port is the most important part of the supply chain since it handles the first (export) and last (import) mile of the international transit process. The port is also the slowest and most complex part of the supply chain. -- Example: > A container loaded in China covers 6,000nm to LA in 18 days (14 knots). > Once it is processed through the port, the container can make it 3,000 miles to the East Coast of the US in less than 7 days > To move this container the ½ mile from the vessel berth to the port exit can take anywhere from a few hours to a week • For this reason, Ports are increasingly becoming the focus of private market participants looking to capitalize on throughput efficiencies they can deliver to importers and exporters. • For many importers based in emerging markets (that typically lack a distributed warehouse infrastructure), the port is also the primary logistics hub servicing their business
- 8. Produced by Amar Ehsan, CFA Major ports facing structural issues by 2011-15 Tubarao, Brazil Newcastle , Australia Richards Bay, South Africa US West Coast West Coast of India Vietnam, Philippines , Indonesia Hong Kong, Shanghai (CHN) Suez Canal Russian Access to Black Sea/Med
- 9. Produced by Amar Ehsan, CFA Infrastructure as a new asset class • Massive needs for infrastructure funding has attracted large pools of private capital. • Increasing capital demand has pushed down return expectations but provided greater market liquidity. • As the market matures, a risk/reward spectrum has been outlined with investors being offered everything from mature infrastructure maintenance opportunities (lower risk project financing) to Greenfield development projects (higher risk JV). • Sophisticated Private investor consortiums that bankroll Greenfield developments are creatively monetizing the projects by marketing to pension funds and other institutional investors looking for stabilized assets, or by turning investments into public companies. • Public administrators in many emerging markets are receptive to the expertise being brought in by foreign capital and are working in concert with these groups to draft new policies that encourage privatization and to make public assurances available that create a lucrative business environment GrossCapitalFormation as% ofGDP(IndexedtoUS) 1.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 China Korea,Republic of VietNam Qatar Malaysia Thailand UnitedArabEmirates India UnitedStates Strong shift towards capital formation and infrastructure building
- 10. Produced by Amar Ehsan, CFA Where are the Opportunities?
- 11. Produced by Amar Ehsan, CFA How to get involved… • Public entity in charge of port and related services offers out an “exclusive lease period”, during which time the successful bidder has sole control over the facilities and collects 100% of the profit margin on a regulated rate basis. Public interest is “bought out” by highest bid. – Example: • Chicago Skyway (IL, USA) • Westshore Terminals (BC, CAN) • Long Beach (LA, USA) • Downside to this model is that successful bidder rarely has incentive to lower pass-through costs to end customer. Additionally, public entity makes decision based on best bid, not best operator • Anticipate transaction models to move away from selling concessions to highest bidders to revenue-sharing arrangements and availability contracts for lowest-cost operators • Privatization models should move away from how governments can get the most dollars for a concession to models that secure the lowest bidder for providing the most efficient service as well as revenue sharing in the efficiency gains. • Private operators get paid for running the concession better with a stake in the ongoing benefits rather than the government selling an asset for a short-term cash infusion. • Governments make bidding and documentation process more uniform and less onerous in reviewing privatization proposals from funds and operators. Uniform standards and practices help speed up the process and reduce costs, improving clarity without necessarily compromising thoroughness Various forms of private/public partnerships (PPP) offer governments the opportunity to retain control, transfer risk of cost overruns, and gain efficiencies from private operators. OLD PROCESS NEW PROCESS
- 12. Produced by Amar Ehsan, CFA Illustrative Opportunities… VIETNAM Expansion project to build two additional harbors capable of handling ships of up to 50,000 DWT for the Cai Lan deep- sea port in the northern province of Quang Ninh. The Quang Ninh Port Management Company has recently signed a Memorandum of Understanding (MoU) with the US- based SSA Marine to establish a joint venture company to co-ordinate the expansion project. The project is estimated to cost more than US$60 million. A SSA Marine representative said the company plans to invest $30 million into the project and is willing to provide the rest of the capital for its Vietnamese partner in the form of non-governmental guaranteed loans.
- 13. Produced by Amar Ehsan, CFA Other Illustrative Opportunities… INDIA
- 14. Produced by Amar Ehsan, CFA Other Illustrative Opportunities… DUBAI/UAE/MENA Private Opportunities: Project Financing/JV stake in expansion of Fujairah container terminal and Crude Oil Terminal Project financing in new QatarGas LNG terminal Project financing in expansion of Jebel Ali Container Yard and replacement of stacking equipment Public Opportunities + Alliances: Public Investment/JV Stake/Strategic Alliance in DP World Group (Dubai World Ports Authority) Strategic Investment in Abraaj Capital or similar MENA focused infrastructure funds Strategic Asset Alliance with Local Private Equity sponsors (Dubai Islamic Bank, Gulf Finance Corp (Shuaa), Emirates Bank)
- 15. Produced by Amar Ehsan, CFA Other Illustrative Opportunities… EASTERN EUROPE * Macquarie Bank JV with Gdansk Port for container facility * Planned LNG Terminal ($300mm Greenfield)