Hutchison Port Holdings Trust

(18-03-2011, 09:25 AM)lonewolf Wrote: Frankly, what the use of having independent directors when most independent directors are probably just 'yes-man' and agrees with everything the board says in the first place? The independent directors are not truly independent as long they are receiving a fat director fee from the trust. I hardly call that a safeguard.

Sounds like the regular local way of doing things

Any idea what will their gearing be post-IPO ?

(18-03-2011, 11:02 AM)Nick Wrote: Any idea what will their gearing be post-IPO ?

According to pro-forma statements based on high price of US$1.08, total assets will be HK$143,852mn and total liabilities HK$51,046mn. So liabilities-to-equity will be about 55%. Since actual price is lower at US$1.01, i'm guessing the same ratio will now be about 58%.

Note: It is stated that 99% of IPO proceeds will be used to purchase the assets from Hutchison Whampoa, with only 1% used to pay off creditors. In the same pro-forma statements, there was a recorded goodwill of HK$45,869mn, so liabilities-to-tangible equity is higher at 109%.

Do you think banks will lend based on goodwill as collateral? Or will the assets eventually be re-valued upwards as goodwill is written off?

HPH-T closed at US$0.95 which is a 6% decline from its IPO price of US$1.01.

At what yield would you consider this biz trust a good buy ?

(Do read enclose page 64 of the IPO prospectus as follows:- )

It highlights that port operation license is renewal every 3 years
and is not guaranteed

"The ports industry in the PRC is a highly regulated industry.
The PRC port industry is highly regulated. Operators are required to obtain a port operation
licence, which has to be renewed every three years (which requires certain requirements to be fulfilled),
as well as to comply with strict regulations in respect of, among other things, operational management,
supervision, inspection and the loading, unloading and storage of hazardous goods.
Although the Trustee-Manager does not expect to have any difficulties in obtaining or renewing
the port operation licences, there is no assurance that future applications to obtain or to renew the
licence will always be approved. Any failure by HPH Trust to obtain or renew its port operation licence
would have a material adverse effect on its financial condition, cash flows and results of operations.
In addition, as a result of terrorist activities and increased security concerns, there is a global
move towards increased inspection procedures and tighter import/export controls and safety regulations.
If the compliance costs of any new regulations or procedures cannot be recovered through higher ports
fees and charges, the operating margins of HPH Trust may be adversely affected."

"RISKS RELATING TO THE PORT INDUSTRY
HPH Trust’s inability to maintain and renew concession agreements or government approvals may
adversely affect HPH Trust.
Substantially all terminal operations in the container terminal industry are conducted pursuant to
long-term operating concessions or leases entered into between a terminal operator and the owner of the
land on which the port is situated, typically a government entity. Concession agreements often contain
clauses that allow the owner of the land on which the port is situated to cancel the agreement or impose
penalties if specified obligations are not fulfilled. Similarly, because many of the counterparts to
concession agreements are government entities, HPH Trust is subject to the risk that concession
agreements may be cancelled because of political, social or economic instability or conditions. Ports are
often viewed by governments as critical national assets and sentiment changes may affect port
concessions. There can be no assurance that one or more of the existing concession agreements will not
be prematurely cancelled or that HPH Trust will not be penalised, with or without cause, by the
applicable counterparty.
In advance of the expiration of a concession agreement, the owner of the land on which the port is
situated will typically agree to renew the concession with the existing concessionaire, but often only
after significant renegotiation that usually involves, among other things, a commitment on the part of
the concessionaire to make a capital expenditure with respect to the relevant operation. There can be no
assurance that the concession agreements will be renewed upon their expiration on commercially
reasonable terms, if at all, or that HPH Trust would be the winning bidder in any re-tender of one or
more of the existing concessions should the relevant port owner elect not to renew the relevant
concession with HPH Trust.
In the PRC, terminal operations in the container terminal industry are conducted pursuant to
approval from the PRC Government (as defined herein). YICT, YICTP3 and SYWPT operate Yantian
based upon the port operation permits issued by the port authority and approvals from the National
Development and Reform Commission and the Ministry of Commerce. The Port Law of the PRC and
other relevant regulations authorise the port authority to impose penalties or even revoke the port
operation permits if an enterprise engaging in port operation violates certain specified obligations. HPH
Trust is subject to the risk that the port operation approvals may be cancelled or changed by the PRC
Government due to political, social, military, economic instability or conditions.
The operation terms of YICT, YICTP3 and SYWPT have been specified in their current business
licences. Any extension of such operation terms will be subject to the approval of the PRC Government.
There can be no assurance that the operation terms of YICT, YICTP3 and SYWPT will be automatic"

Quite an interesting piece of information but I guess this is how ports in most parts of the world are run. Quite similar to leasehold properties. Generally, Govts won't take back the port for no reason. If they did so, few operators would wish to invest in their ports since they won't be able to re-gain their investments so the Govt loses.

There are quite a few port players listed in SGX -

1) HPH-T
2) Portek (owns and operates ports in emerging countries)
3) Pan United (majority owner of Changshu Xinghua Port)
4) Macquarie International Infrastructure Fund (minority owner of Changshu Xinghua Port)

In SEHK, I believe China Merchants International is also dealing in the port business.

Business Times - 31 Mar 2011

Are Reits a better alternative to Hutchison Port trust?

By EMILYN YAP

HUTCHISON Port Holdings (HPH) Trust's initial public offering has clearly been a letdown for punters who are in for a quick ride. The container port business trust sank in its stock market debut almost two weeks ago and has not recovered past its offer price of US$1.01 per unit since.

But for long-term investors seeking yields, the verdict remains open. The lower unit price means a chance of securing higher yields by buying in now, assuming that the projected distributions to unitholders (DPUs) materialise. Is HPH Trust worth a shot for this purpose?

The answer may be 'no', because better options exist in the form of real estate investment trusts (Reits).

To be fair, HPH Trust is dangling attractive yields. Its forecast seasonally annualised DPU for 2011 is 45.88 Hong Kong cents and at yesterday's closing unit price of 98.5 US cents, after currency conversions, the yield comes up to almost 6 per cent. This is high in today's low interest rate environment. For 2012, based on the same closing unit price, the yield could be 6.7 per cent.

What is uncertain is whether HPH Trust will eventually pay out the same DPUs as projected, and also maintain reasonable distributions in future.

In the first place, business trusts are not required to make minimum levels of payout. This is something that a number of investors may not have noticed, because they assume that business trusts and Reits are the same. They are not.

HPH Trust said in its prospectus that its policy is to give out all of its distributable income. But in any case, it has flexibility to change this, especially if hard times come along.

Recall what shipping trust Rickmers Maritime did in 2009 when it had to conserve cash during the financial crisis. Even though income available for distribution in Q2 rose 42 per cent year-on-year, Rickmers still cut DPU and unitholders received 73 per cent less from the previous year.

By contrast, Reits have to pay out at least 90 per cent of their distributable income to unitholders to enjoy tax transparency on the amount they pay out. This alone puts Reits ahead of business trusts for investors keen on steady yields.

Unitholders can be pretty sure that this rule will not change. Even in the face of 2009's credit crunch, the authorities rejected requests from some Reit managers to lower the minimum payout ratio, emphasising that Reits' characteristics as a stable, high-payout, pass-through vehicle must be preserved.

Reits look even safer when we consider the currency exposures HPH Trust investors face. Most of HPH Trust's revenue is recognised in Hong Kong and US dollars; its units are priced in US dollars; and its DPUs are in Hong Kong dollars. The risks are worth repeating given how the Singapore dollar looks poised to continue strengthening.

The Sing dollar was trading at around S$1.26 to the US dollar yesterday and one of the more bullish research houses believes this could reach S$1.19 by year-end. If the forecast materialises, HPH Trust investors will have to pray that unit prices go up by more than 5 per cent just to make up for foreign exchange losses.

The Singapore Exchange (SGX) is looking at ways to facilitate the quotation and trading of HPH Trust in Singapore dollars as well as US dollars. But until details emerge, it is not clear if the arrangement will remove currency exposure on that front.

Also, assuming that the Sing dollar appreciates against the Hong Kong dollar at the same pace (since the latter is pegged to the greenback), HPH Trust's distributions would lose value after currency conversion.

Investors can easily minimise foreign exchange risks by investing in Reits. All but one of them listed on SGX trade in Sing dollars, and most pay out distributions in Sing dollars. It is even possible to find Reits which hold only assets in Singapore, meaning that income streams are insulated from currency movements.

A quick scan on Bloomberg turns out a few Reits that generate yields of over 6 per cent and pay out distributions in Sing dollars. Some examples are Ascendas Reit and Frasers Commercial Trust.

Some may argue that HPH Trust has greater growth potential because its Shenzhen ports still have a lot of room for expansion. Also, unlike Reits, business trusts are not hampered by limits on borrowings or development asset size.

These are good reasons for the growth-seeking investor to consider HPH Trust. But investors hungry for yields and stability may sleep better with their money parked in Reits.

Cosco Pacific Considers Trust After Hutchison Port Listing
By Billy Chan - Mar 23, 2011 6:59 PM GMT+0800

http://www.bloomberg.com/news/2011-03-23...ng-1-.html

HPH finally reached IPO price of US$1.01 today.

At one point, it was touching US$1.02.

Stabilizing managers at work, or... ??

(08-04-2011, 09:41 PM)nutty Wrote: HPH finally reached IPO price of US$1.01 today.

At one point, it was touching US$1.02.

Stabilizing managers at work, or... ??

Mgr been working overtime !!!
will be interesting once stablisation ends..


Date of Purchases: 8 April 2011
Total number of Units purchased: 82,528,000 Price Range of Purchases: US$0.995 – US$1.010

Date of Purchases: 7 April 2011
Total number of Units purchased: 30,339,000 Price Range of Purchases: US$0.980 – US$0.990

Date of Purchases: 6 April 2011
Total number of Units purchased: 35,000,000 Price Range of Purchases: US$0.980 – US$0.985

Date of Purchases: 5 April 2011
Total number of Units purchased: 27,000,000 Price Range of Purchases: US$0.975 – US$0.980

Date of Purchases: 4 April 2011
Total number of Units purchased: 10,000,000 Price Range of Purchases: US$0.975 – US$0.980

Date of Purchases: 1 April 2011
Total number of Units purchased: 28,429,000 Price Range of Purchases: US$0.975 – US$0.980