The deal that the Russian port industry has been waiting for six months has been completed - the Global Ports group has reached agreement with the shareholders of the National Container Company on acquisition of the company for USD 291 million plus 18% of the increased share capital of the group. The package of assets for potential acquisition also includes Container Terminal Ilyichevsk (CTI) in Ukraine (currently as an option that is to be exercised within three years). For the Russian market, this event represents prospects for emergence of a major container company with a market share of approximately 40%. For the Ukrainian market, it represents the first ever opportunity to assess the value of Ukrainian container terminals based on market principles: 50% of the shares in the Ilyichevsk terminal are valued at USD 60 million. However, it will be a great stretch to say that this value can be used as a reference point for possible deals involving other Ukrainian port assets.
A game of large containers Information about the interest of Global Ports in its competitor NCC first emerged in May this year, and it was confirmed within the Global Ports group itself. At present, NCC belongs to entities owned by Russian businessman Andrei Kobzar and Russian State Duma deputy Vitali Yuzhilin. According to the Russian edition of the Forbes magazine, Transportation Investments Holding Limited (which is controlled by Nikita Mishin and Andrei Filatov) owns 37.5% of the Global Ports group and APM Terminals owns 37.5%.
The value of the deal is USD 291 million plus new shares representing approximately 18% of the enlarged share capital of Global Ports, which will be issued to the existing shareholders of NCC. The shareholders of NCC will receive two seats on the board of directors of Global Ports without without special voting or veto rights. The market value of the 18% stake was USD 360 million at the close of trading on August 30, according to a press release issued by Global Ports. Included in the purchase price is NCC’s debt of about USD 900 million. Considering this information, the head of the Russian-based InfraNews analytical agency, Aleksei Bezborodov, estimates the entire acquisition at USD 1.572 billion. "Given the NCC’s capacity of 1.69 million TEU, although this capacity is nominal, we have a value of almost USD 1,000 per TEU,” said Bezborodov.
The expert believes that the acquisition will enable Global Ports to consolidate its leading position in the market of container transshipment and significantly increase its market share. "As a result, Global Ports is creating a monopoly position in the market. They have a dominance that exceeds 72%, in the northwest, more than 82% in St. Petersburg, and almost 62% in the northwest and the Arctic. Its share in Russia is 39%,” the analyst final said.
Secret comes to light Exercise of the option to acquire 50% of the shares in CTI will also give Global Ports access to the Black Sea, i.e. access to a market that is new to it. Experts believe that this is the main asset of the Ukrainian company: all its property, excluding a few cranes and container loaders, are used for joint operations with the state-owned port.
It is worth noting that the conclusion of the deal someway sheds light on the ownership structure of CTI, on which there had been practically no reliable information until now. After Ukrtranscontainer (the legal predecessor of CTI) resumed joint operation with the Ilyichevsk seaport, rumors circulating on the market indicated that the resumption of joint operation was connected with emergence of Ukrainian co-owners of the company. This information logically fit in with the fact that Ukrtranscontainer suddenly disappeared from the list of assets of the NCC, its parent company, at the beginning of 2012. In April of the same year, NCC announced in a news release that it was replacing the Ukrtranscontainer brand with CTI and later announced replacement of the management of the Ukrainian company. Since then, the NCC has not included CTI in its consolidated financial statements and list of assets. That notwithstanding, CTI itself denied any change of ownership.
CTI was not included in the deal for NCC because it is not part of NCC but owned separately by the shareholders of NCC
Global Ports’ press release that announced the deal states that CTI was not included in the deal for NCC because it is not part of the NCC group. Rather, it is owned separately by NCC’s shareholders. If we assume that NCC and its shareholders involved put up for sale their entire stake in the Ukrainian terminal, then the owner of the remaining 50% remains anonymous.
Misty landmark The deal concluded in Russia also allows one to put a figure on the Ukrainian market of container operators. For example, one can calculate the approximate value of the entire container-operation business in Ukraine based on this deal. If 50% of the shares in CTI are estimated at USD 60 million and 100% at USD 120 million, then all Ukrainian capacities can be cumulatively valued at USD 375 million, considering CTI’s 32 % market share (based on its capacity of 850,000 TEU).
CTI is significantly behind Russian terminals based on the value of one TEU because one TEU of capacity at Ukrainian terminals is valued only at slightly more than USD 140, judging from this deal. However, according to market participants, it is necessary in this case to make allowance for the fact that CTI is not a complete asset because it operates under an agreement on joint operations or essentially as a joint venture with the state. Moreover, the mechanism for interaction between its private owners and the state has not yet been regulated.
Experts do not agree unequivocally that the deal involving CTI can serve as an indicator of the value of the other assets on the Ukrainian market. "It will not be possible to apply these price points directly to other Ukrainian terminals because several important parameters should be taken into consideration additionally when assessing an individual container terminal: the maximum draft of vessels, the area and equipment of storage facilities, the height and reach of the container loader, the daily rate of loading, etc.,” said Dmytro Yahello, a consultant with CTS Consulting. According to him, these parameters will be different for each terminal and will determine the necessary requirement for additional investments, which directly determines the final value of an asset.
Market participants share this opinion. "I do not think that one can estimate the value of any container business in Ukraine based on this option. It should be taken in to account that the buyer’s main object of interest was specifically CTI, and this Ukrainian asset was included in the package deal on a residual basis,” said Andrii Stavnitser, the director of the TIS company.
The values of container businesses have fallen lately: the price of USD 500 per TEU capacity could be considered fair for the market just a few years ago, but it is USD 220 today
At the same time, he considers the price that Global Ports offered for the Ukrainian asset fair. "I think that the values of container businesses have fallen lately: the price of USD 500 per TEU capacity could be considered fair for the market just a few years ago, but it is USD 220 today,” said the director of TIS. According to estimates by CTS Consulting, the cost of CTI is estimated at USD 141.2 per TEU capacity or USD 545.5 per TEU handling, based on the proposed price of the package. "There is information that Yuzhilin invested about USD 60 million in the terminal in Ukraine and that it would suit him if he recovered this money now,” added Stavnitser.
However, he does not agree that the transaction is an indicator for assessing the value of the TIS container terminal or any other container terminal in Ukraine. "At CTI there exist only potential rights to a concession,” he said According to him, it is also wrong to calculate the value of the entire market by calculating the share of each terminal based on its capacity because terminals are currently underutilized. "Almost every one of them has the potential to grow 2.5-3 times, but not all of them will be able to realize this potential,” he said.