China to Own Brazil’s Most Profitable Terminal

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China Merchants Port Holdings (CM Port) has agreed to buy 90% of Terminal de Contêineres de Paranaguá (TCP), one of Brazil’s largest and most profitable port terminals, for $925 million.

The deal is one of the largest ever held in the container terminal sector in Latin America and will mean that the Chinese state conglomerate will gain its first port operating capabilities in Brazil.

This will further the Chinese government's Belt and Road initiative to invest hundreds of billions of dollars in a series of ports, roads and other infrastructure spanning across Eurasia and into South America.

The completion of the terminal deal, expected to happen by the end of 2017, is subject to the usual preconditions for this type of business, including regulatory approval and by the Administrative Council for Economic Defense (CADE).

Under the agreement, CMPort will buy 50% of TCP shares belonging to Advent International and 40% of the company's shares owned by the founding shareholders of TCP.

Dr. Bai Jingtao, Managing Director of CMPort, said: “China Merchants Port has rapidly expanded its international presence and understands that entry into Latin America, especially in Brazil, is crucial to the global expansion of its terminal network.

“TCP is not only the key landmark of China Merchants to enter Brazil, but the future hub for the growth of the flow of commodities and goods between Brazil and China.

“China Merchants Port will also use its global port operation experience to help TCP continue its success story as one of the leading port industry leaders in Brazil and Latin America.”

Technical Paper: China’s One Belt One Road

The terminal has an annual capacity of 1.5 million TEU and an expansion programme that will increase its capacity to 2.4 million TEUs each year until 2019.

Located in the Port of Paranaguá (PR), the terminal stands out as one of the most important hubs for cargo handling for export and import in Brazil, handling approximately 10% of the total containers in the country.

Luiz Antonio Alves, TCP's CEO who led the project to transform the terminal into one of the most well-operated in Brazil and expanded its operations to integrated logistics services, will remain the company's leader.

Alves stated: “China Merchants Port is one of the most prominent companies in the port sector around the world and we are very excited to have them as the new majority shareholder of TCP.

“Certainly, China Merchants will contribute much in this new stage of growth of the company, taking advantage of the synergies with the various terminals operated by the group in the world and offering its global experience to TCP customers.

“We look forward to working with China Merchants Port and to continue to develop this winning TCP project.

“Advent and its founding partners played a fundamental role, supporting the company's operational transformation.

“Our annual capacity has increased from 800,000 TEUs in 2011 to 1.5 million TEUs today, while our average productivity jumped from less than 30 mph (moves per hour) to over 90 mph in the same period.”

Citing two people with knowledge of the deal, Reuters said that CM Port’s bid valued TCP at 14.3 times annual earnings before interest, tax, depreciation and amortization.

Reuters reported on April 19, 2017, that estimates were around 13 times EBITDA.

APM Terminals confirmed the sale of its 5% share in TCP to CM Port yesterday (September 4, 2017), but did not share the price and terms settled by Advent.

Reuters sources said that Advent and partners in TCP negotiated for over a year with other global port players, including Dubai Ports World Co.

AMP Terminals said in a statement: “Strategy-wise, the 5% share sale in Paranagua is deemed a small share in a port that is not operated or owned by APM Terminals and the exit reflects the company’s broader portfolio management strategy to focus on core assets and divest non-core assets.”

Dr. Hu Jianhua, Executive Vice President of China Merchants Group and Vice -Chairman of CMPort, said: “Brazil is the largest economy in Latin America and has a large potential market, in addition to abundant resources and reserves.

“The country is also a member of BRICS and China's most important strategic partner in the region.

“The transaction is in line with China Merchants Group's strategy to promote trade cooperation with the BRICS, as well as the 'China-Brazil Joint Action Plan.

“The transaction will help CMPort achieve its business objectives while at the same time contributing to the development of trade between Brazil and China and the strategic cooperation relationship between the two countries.”

The deal is the second high-profile purchase in recent months by CM Port.

The Hong Kong conglomerate, which posted an 86% jump in net profit for the first half of 2017, recently entered into a contentious  99-year concession agreement to operate and develop Hambantota Port in Sri Lanka.

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