Napier Port float gets thumbs up from analysts
A partial float of Napier Port should attract good investor interest and may prove a catalyst for a wider shake-up in the sector, fund managers say.
Hawke’s Bay Regional Council’s proposal to list up to 45 percent of the port on NZX was an “an interesting and surprising” development, said James Lindsay, senior portfolio manager at Nikko Asset Management.
Listing the firm would help ensure it worked to achieve decent returns by looking after its New Zealand customers and suppliers. Subject to the pricing “we’d be fully supportive of them having something listed on market,” he said.
The council is embarking on a six-week consultation process with its ratepayers and favours selling up to $181 million of shares in the business. That would leave it with a controlling stake in a growing business, sufficient cash to fund environmental projects it plans, and a more diversified investment base.
Other options the council is seeking feedback on include:
- sale of a minority stake to a partner – which it thinks would raise less money;
- sale of a long-term lease to an operator – which could raise the most money;
- retaining the current structure and raising rates by 45 percent to fund the port’s expansion.
Craig Stent, head of equities at Harbour Asset Management, believes there would be good interest if the listing goes ahead.
Port of Tauranga has delivered strong returns over many years and Napier would give investors an exposure to Hawke’s Bay’s agriculture and horticulture industries.
“They are fairly safe, defensive investments with a reasonable amount of growth – although that growth is somewhat linked to local GDP growth.”
New Zealand’s ports, previously run by elected harbour boards, were corporatised in 1988. The history of those that listed is mixed.
In 2010 the New Zealand Institute of Economic Research found the major ports had delivered substantial returns since corporatisation. But it also said they had considerable scope to improve their performance and that council ownership had been an obstacle to rationalisation within the sector.
"It would be encouraging if other councils – such as Christchurch and Auckland – relooked at a sell-down for their ports."
Craig Stent, Harbour Asset Management
Of the listed companies, Bluff-based Southport remains 66 percent-owned by Southland Regional Council. Port of Tauranga, 54 percent-owned by Bay of Plenty Regional Council, has expanded massively and now owns half of Northport and PrimePort Timaru and has inland container depots in Rolleston and Auckland.
Ports of Auckland was listed in 1993, with 20 percent of shares tradeable. It was delisted again in 2005. The regional council, having extracted any surplus capital from the firm during the preceding 12 years, bought out the minority holders citing diminishing returns and the need to rationalise the city’s waterfront.
Ports of Auckland has been far less successful financially since delisting than its listed counterpart in Tauranga. POA net profit after tax grew 36 percent between 2004 and 2017, compared with 148 percent growth at POT. There was some discussion in the market last year about a possible re-listing, with analyst support but nothing concrete from port management.
Talks on a possible merger with Tauranga ended in early 2007.
The port, which has a stake in Northport’s parent company, also built inland freight hubs at Wiri, Mt Maunganui, Longburn and now Horotiu. Longburn is operated in partnership with Napier Port.
In August, the government named a five-member panel to review the freight and logistics system in the upper North Island. Its brief includes assessing the feasibility of relocating the Auckland port business to Northland long-term.
Lyttelton Port Company was delisted in 2014, eight years after Christchurch City Holdings had proposed such a move as part of a plan to appoint Hong Kong-based Hutchison Port Holdings – the world’s biggest operator – to run the business.
That transaction withered after Port Otago bought a 10 percent blocking stake. Otago and Lyttelton investigated a merger in 2008 but that has not proceeded.
Stent said it would be encouraging if other councils – such as Christchurch and Auckland – relooked at a sell-down for their ports. Both cities have needs for capital elsewhere and could still retain a majority interest.
Mark Lister, head of private wealth research at Craigs Investment Partners, said the whole sector would benefit if more ports were subject to the investor scrutiny that comes with listing.
“If you get that across the country you get a much, much more efficient port system everywhere rather than some of them being poorly run because councils aren’t insisting on those commercial drivers.”
While he welcomed Napier Port’s potential listing, Nikko’s Lindsay believed there was still too much duplication in the sector. Running them each as separate businesses, each spending time and money investigating and new technologies like automation, was not efficient for the country.
“I think a consolidation of some of them to optimise the freight network for New Zealand would be a really good thing.”
An option that would encourage that was the operating lease model that Lyttelton and Napier had investigated and which has proven successful in Australia and other parts of the world.
Lindsay said that would leave councils full ownership of the port land and assets, and the operating company could get on and drive efficiencies. Having a single operating company for multiple ports would encourage greater optimisation across the country and further reduce costs.
Hawke’s Bay regional councillors initially favoured a 50-year lease of the Napier Port operation, which it estimates could raise $466 million – leaving the council $366 million to reinvest. Listing is expected to raise $181 million and leave the council with $83 million for reinvestment.
But the council was conscious that most of the interest in an operating lease would be from overseas players. Nor was it confident about committing the region to a 50-year partnership and what it would take to maintain that relationship.
The council said it was “concerned around values alignment and the importance of ensuring a clear and direct connection between the port, its staff, the local community and management.”
The option remains among four the council is consulting on.
“There’s huge value being lost in New Zealand Inc. for that model not being instigated,” Lindsay said.
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