Upload
juniper-elliott
View
234
Download
8
Tags:
Embed Size (px)
Citation preview
Hutchison Whampoa Limited: Invest in the Phase II Shanghai Deep-water Port?
Vidya VishalJerry WangGrace ZhaoGaobo Zhou
February 27th, 2006
2
Agenda
Case overview Hutchison Whampoa Limited China’s economy, port industry, and Shanghai ports The Yangshan Deep-water Port Project The Yangshan Deep-water Port phase II (expansion) Other potential investors The question Our analysis
3
Case Overview - Geography
Yangshan Islands
4
Case Overview
Case timeline: September 2004 Constraints at existing Shanghai Ports Deep-water Port on Yangshan Island
Phase I Under Construction – Est. Completion: EOY 2005
Phase II Under Planning Open to Private Investors
HWL’s Question – Invest in Phase II or not?
5
Hutchison Whampoa Limited (HWL) HK-based international corporation Highly diversified company Consolidated turnover ~$2.3 bn Operations in 54 countries; 200,000 employees World’s leading port operator
Operates 242 berths in 41 ports spread over 20 countries First foreign firm to invest in and operate container terminals in
Shanghai
6
China Economy
Tremendous economic prosperity since the reform started from late 1970s GDP doubled every 7 years since 1987
Strong economic performance attracts the foreign investment China surpassed U.S. and became the most attractive destination for
FDI. FDI totaled $60.6 billion with growth rate 13.3% Low operating cost and huge existing/potential market
Fast growing foreign trade Foreign trade has increased by 30 times in 24 years
7
Port Industry in China
Port
EOY 2004 Throughput
Capacity (million TEUs)
2005-2010 Growth in Capacity
(million TEUs)
Annual Growth
Rate
Bohai Bay Region
Dalian 2.2 6.2 30.7% Tianjin 4.8 6.0 17.6% Qingdao 6.5 4.5 11.1%Subtotal 13.5 16.7 17.5%
Changjiang Delta
Shanghai 8.4 15.0 22.8% Ningbo 3.0 11.4 36.9%Subtotal 11.4 26.4 27.2%
Zhujiang Delta
Xiamen 3.7 4.6 17.5% Shenzhen 6.2 8.1 18.1% Guangzhou 4.2 4.2 14.9%
Subtotal 14.1 16.9 16.8%
Total 39.0 60.0 20.5%
Source: Huatai Securi t i es Co. (Chi na)
Bohai Bay
Zhujiang Delta
Changjiang Delta
8
Port Industry in China (cont’d)
Nationwide cargo throughput will increase at declining growth rate Increase of cargo throughput is much higher than growth of foreign
trade and growth of GDP Estimated annual increase of cargo throughput 10% - 20% for the next
ten years
Competition among ports will intensify Various new ports and port expansion projects Low utilization rate and excess capacity Some ports may have to lower their service charge
9
Shanghai Ports
Shanghai port is the largest port in China Shanghai is China’s business center 99% of Shanghai's foreign-trade goods are handled by its ports Cargo handling capacity of 400 million tons Container handling capacity of 18 million TEUs
3 ports Waigaoqiao port (not deep-water port) Huangpujiang port (not deep-water port) Yangshan deep-water port (under construction)
10
Yangshan Deep Water Port Project
Phase I Phase II Phase III Phase IV Phase V Phase VI Phase VII Total
Completion Time 2005 2006 2008 2010 2020 2020
Total Investment(billion)
1.25 0.8 11.75 12.2
AccumulatedAnnual Capacity
(TEU, million)2.2 15 20 20
Number ofBerths
5 4 4 3 14 30
11
Phase I Construction started in 2002 Operational In EOY 2005 Total Investment: 1.25 Billion with
50% debt financing Four major components:
Port zone Five berths 2.2 MM TEUs capacity Allow 6th Generation Ships
Donghai Bridge 32 Kilometers Connecting Shanghai And
Yangshan 5 MM TEUs capacity
Lu-Hu Freeway 43 Kilometers Connecting Luchaogang and
Shanghai Luchaogang city
12
Deal Structure for Phase I
Shanghai InternationalGroup CorporationLimited (SIG)
Shanghai Port AuthorityPredecessor of SIPG
Shanghai State-ownedAsset ManagementCompany
State-owned AssetSupervision &Admistration Commissionof Shanghai Government
China Merchants Holding(International) Group(CMG)
Shanghai TongshengInvestment Group(SHTS)founded in 2002
Shanghai State-ownedAsset ManagementCompany
Shanghai MunicipalGovernment
Shanghai ShengdongInternational ContainerCo. Ltd. (SHSD)founded in 2004
Shanghai DashengHoldings Co., Ltd.founded in 2002
100%
Shanghai InternationalPort (Group) Co. Ltd.(SIPG)
Shanghai InternationalPort Group (SIPG)
Shanghai Port ContainerCo.,Ltd.(SPCCO)
Shanghai Port ContainerComprehensiveDevelopment Co., Ltd.(SPCCD)founded ini 1992
Hong Kong HutchisonWhampoa Ltd.(WHL)
Restructured in2005
75%
Restructured in1998
52%
50% 30% 19% 0.5% 0.5%
49%
51%
Shanghai ContainerTerminals Co., Ltd.(SCT)founded in 1993
50%
50%
SHSD purchased Yangshan PortPhase I from SHTS in 2004
Yangshan Port Phase IConstruction & Operation Apr. 2002 - Dec. 2005
40% 8%
Shanghai Port AuthorityPredecessor of SIPG
Yangshan Port Phase IIConstruction & Operation 2005 -?
Shanghai InternationalPort (Group) Co. Ltd.(SIPG)
? ?
13
Yangshan Deep-water Port Phase II
Specs Additional 4 berths Waterway depth: 15m,
accommodate 8,000 TEU ships Designed throughput: 2.1 MM
TEU/year Estimated cost: $800 MM Completion date: EOY 2006
Construction Acquire 0.64 km2 land via sea-fill Thick mud foundation complicates
construction
Phase II
Phase I
14
Yangshan Deep-water Port Phase II Operation
Expand SH container throughput Attract international transit shipments Competition
Pusan port: under expansion (2006) Ningbo Beilun port
Better port condition Cross-harbor bridge to shorten distance
to Shanghai (2009)
Silt blockage: Dredging needed Environment hazard: stir-up sea floor Inclement weather could close the
port as many as 50 days per year
15
Other Potential Investors
Port of Singapore Authority World’s largest container terminal operator
AP Moeller-Maersk Focus On Shipping, Oil-drilling, Shipbuiliding, retail
Orient Overseas Container Line Limited Largest Container Transportation Company
COSCO Group Focus On Shipping And Logistics
China Shipping Group State-owned Shipping Conglomerate
16
The Question
Should HWL invest in the Phase II Shanghai Deep-water Port?
17
Our Analysis
Pros China economy booming and
Shanghai maturing as an economic and trade center
Investors have international port management experience
Shipping investors guarantee part of demand
Real option: “Foot in the door” for investment in
future expansion projects
Cons Demand risk
Nationwide cargo throughput increase slowing down
Competition from other ports Disadvantages of private investors
Speed of construction, permits, etc Higher expropriation risk
Bridge capacity constraints Weather-related risks Environmental issues
18
Our Analysis
NPV of project: $29 million Cost of capital:
14.19% in 2005, decrease annually with improvement of China’s country rating
Our conclusion: Marginally successful with IRR of 17.7% Real options – convenient access to future investment opportunities in
expansion projects
19
What Happened
Phase I began operation on 12/10/2005 Reached designed operation level in Jan 2006
Phase II investment agreement signed on 12/19/2005
Hutchison Whampoa Limited 32%
AP Moeller-Maersk 32%
Shanghai International Port Group 16%
COSCO Group 10%
China Shipping Group 10%