Lessons from the 99 year lease of Ports Botany and Kembla

Andrew Rentoul

December 2013

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The highlights

• $5.07 billion in proceeds

• Remarkable 25 x EBITDA

• 99 year lease concession and sale of operating vehicles

• Packaging – 2 different but synergistic assets

• Preserved the State’s preferred risk allocation

• Proceeds earmarked to be recycled into new infrastructure in NSW

Secrets of success…

• Great timing

• 8 months of planning

• Early and extraordinarily thorough investigation of the assets

• Assets extremely well prepared

• Active enhancement – not just adaptation

• Extensive disclosure and explanation

• 90% of vendor due diligence in scoping phase

• Restructured and road tested well before final bids

Value through confidence

• Creating confidence in the assets and the process

• Smooth process with no surprises

• Feedback was that the process and the structure enhanced the price

Port Botany

• Sole dedicated container port in NSW

• More than 2 million container TEUs in FY 2012, driven by import trade

• Container quayline of nearly 4km

• Largest bulk liquids port in Australia

• Committed long-term customers

• Terminal 3 area recently reclaimed and due for development by a 3rd container operator

• Substantial capacity for growth

Port Kembla

• NSW largest break bulk port and major vehicle import hub

• Bulk products such as steel, coal, iron ore, grain, copper concentrate and in the future cement clinker and biodiesel

• Container quayline of nearly 3km

• Direct access to key road and rail

• Committed long-term customers

• Outer harbour expansion project at approval stage

• Earmarked for future container trade expansion when Botany reaches full capacity

Essence of the deal

• Transfer of Port “landlord” business to a SPV, and sale of that SPV

• State retained statutory safety and regulatory functions

• Grant of a 99 year lease of the Port land – a lease of the landlord’s residual interest and rights to rent

• Land will revert to State

• Special enabling legislation to facilitate the restructure and facilitate operation in private hands

Bid process

• Invitation for expressions of interest

• Invitation of indicative bids based on an IM

• Shortlisted bidders given access to a data room and pro forma transaction documents

• Binding bids

• Execution

• Financial close

Themes

Maximise certainty and confidence

Identify and respond to key business risks even before bidders commenced due diligence

Importance of making it as easy as possible for bidders to make the purchase decision

What did this look like?

• Extent of preparation

• Attention to packaging

• Making it work in private hands

What did this look like?

• Active asset enhancement – not just adaptation

• Sensible, informed, risk allocation

Process and disclosure

• Unique approach to initial disclosure

• Comprehensive, thoughtful disclosure

• Answer every conceivable Bidder question in the data room in advance

• Active help for Bidders

• Consistency

…..produced confidence

Predictions

• Momentum

• New sophistication in dealings

• Governments are listening

• Greenfields developments

• Recycling

• New investor class

Lessons from the 99 year lease of Ports Botany and Kembla

Andrew Rentoul

December 2013