When the deal to sell the Port of Galveston’s facilities to an investor group of Hutchison Port Holdings and Carlyle Group fell through in April, the port and financial adviser BMO Capital Markets went back to the drawing board.
The port has been working with BMO for more than a year to attract a private operator to invest as much as $500 million in its breakbulk, dry bulk and roll-on, roll-off facilities and to build a two-berth container terminal on the port’s west end. The HPH-Carlyle pairing seemed the ideal target.
Although Galveston had planned to hang onto its cruise terminal, HPH wanted to buy that, too, so Galveston agreed to sell all of its port facilities. The initial proposal involved revenue guarantees and investment commitments and the assumption of some of the port’s $60 million in debt. The length of the agreement could have been anywhere from 50 to 75 years, depending on the investment.
But the talks dragged on for almost a year. The delays were caused by Hutchison Whampoa’s plan to spin off HPH in an initial public offering and by disagreements within HPH about the wisdom of investing in the U.S. after the congressional flap over DP World’s acquisition of P&O Ports’ U.S. port holdings in 2006. Galveston and BMO have since reached out to two investors who were on the lengthy list initially interested in the project.
“I was pleasantly surprised that there is still significant interest there,” Galveston Port Director Steve Cernak said. “There are at least two entities that are probably going to gel into something. Clearly, this is an opportunity for the port, which does not receive any tax support for the operation, so we do everything on a P&L basis.”
Cernak expects talks with one of the two new investment prospects to begin within 30 to 60 days and to move at a faster pace than the HPH-Carlyle discussions. “I expect that some of the port facilities will be in play in the next the proposal,” he said.
He expects the final agreement to involve firm investment guarantees and the assumption of $45 million of the port’s debt. “It really comes down to how much of the port will be involved and the size of the guaranteed investment. We’re the oldest port west of the Mississippi, and that means that some of our assets are in need of rejuvenation, especially since we’ve just finished deepening the ship channel to 45 feet,” Cernak said.
The port has a permit from the Army Corps of Engineers to fill in five slips where it has finger piers if it gets capital for the project. It could become a small container terminal that would diversify the port’s revenue base.
The new talks are likely to be speeded by the port’s healthy growth record. Galveston’s tonnage through April was 22 percent higher than the same period last year, revenue was up 8 percent, and the hours worked by members of the International Longshoremen’s Association were up 18 percent.
And Galveston already has experience with public-private partnerships. The landlord port has deals with several cruise lines, and with Archer Daniels Midland, Cosco’s dry bulk line, and Del Monte on the cargo side.
“We’ve found ways to bring private investment into the port that have worked,” Cernak said, “so this is just a larger version of that.”
Contact Peter T. Leach at firstname.lastname@example.org.