Qingdao Port probe dampens Hong Kong investor interest

Qingdao Port probe dampens Hong Kong investor interest

The listing of Qingdao Port International on the Hong Kong Exchange has been completely overshadowed by the commodities financing scam that is rocking the Chinese banking sector, and investors have shown little interest in the Bohai Rim port operator.

The world’s seventh busiest container port debuted on June 6 at the same time news broke that commodities stored in the port, mainly copper, were being used multiple times as collateral for loans by a local trading company and a huge investigation has been launched to determine the scale of the problem.

Qingdao Port, with the brand new stock code of 6198, ended its first day of trading on June 6 down 2.4 percent on the opening price of HK$3.76 (US$0.48). It continued its slide this week and yesterday was trading about 4.5 percent down on the list price.

But even before the commodities scandal broke there was subdued interest in the port. Its initial public offering (IPO) yielded only half the target of $640 million. The port did manage to attract some big name cornerstone investors that bought up almost 50 percent of the IPO. Shanghai Zhenhua Port Machinery and Sinotruk International Investment pitched in with $50 million, China International Marine Containers bought $30 million in stocks, and DP World Asia invested $10 million.

Qingdao Port International is the primary operator in the northern China port and handles containerized cargo and bulk shipments of coal, ore, gas and chemicals at 22 terminals and 69 berths. Container throughput in 2013 at the group’s ports of Rizhao and Weihai was 15.4 million TEUs, and the last JOC Port Productivity index had Qingdao Port as the world’s most efficient in terms of berth moves per ship call.

According to the listing prospectus, proceeds from the IPO will go toward building infrastructure, and $300 million has been earmarked for spending on port construction. However, the prospectus also warned investors that it faced competition from other ports in the neighbourhood.

“Our major competitors include port operators in the Bohai Rim region and the Yangtze River Delta, as well as the port of Busan in South Korea. Our competitors are expanding their capacity and modernizing their port facilities. Some of these ports share a fairly large area of overlapping hinterlands and attract similar types of customers and cargo to us,” potential investors were told.

At the moment, the greatest competition appears to be coming from itself in the form of finding a way to convince investors that the commodities scandal has nothing to do with the actual port and will not affect its cargo throughput. There have been reports of commodities traders moving stocks of copper and aluminium out of the port to avoid having them seized by authorities, but container operations have not been affected.

Qingdao Port Group is the second Chinese port to list in Hong Kong in the last six months. Qinhuangdao Port Co. in the Bohai Rim went public in December, raising $562 million in its IPO — well short of its $700 million target. Its share price has tumbled 17 percent since the December 12 listing. Other Chinese port companies listed on the Hong Kong Exchange are Dalian, Xiamen and Tianjin.

Hong Kong-based transport analyst Charles de Trenck said the goal of listing is usually to raise money from investors to repay state funding for capex projects, but going public has little impact on port operations.

Contact Greg Knowler at gknowler@joc.com and follow him on Twitter: @greg_knowler.