U.S. interest rates to drive port deals over next 12 months

Drewry says companies are eager to acquire, refinancie port assets while interest rates are low.    Drewry Maritime Advisors says it expects an increased number of port assets acquisitions and refinancing over the next year as companies seek to take advantage of U.S. interest rates while they are still low.
   “U.S. federal funds target rate is projected to increase from its all-time low of 0.25 percent, with the tapering of the Federal Reserve’s bond purchases. The prospect of higher borrowing costs will drive more acquisition activity, as investors seek to secure financing at low rates before costs start to rise. Similarly, port operating companies will look to refinance outstanding loans prior to any rates rise,” said the London-based consultants.
   “We have already noticed this trend within our own portfolio of consulting projects,” said Tim Power, director of Drewry Maritime Advisors. “Over 70 percent of our current consultancy workload relates to due diligence of port asset acquisition and refinancing assignments. Three years ago, this activity represented less than 30 percent, indicating the growth in the scale of such transactions. We expect this trend to accelerate over the next 12 months as investors seek to lock into low rates.”
   Drewry Maritime Advisor’s Port Sector Index, a measure of the market weighted value of listed companies within the ports sector, has risen 13.7 percent since the start of the year. The index is still 37.8 percent off its pre-financial crisis high in late 2007, but has been rising steadily since 2012.
   Port operators are preempting any upcoming rise in interest rates by engaging lenders to refinance or seek out new capital while rates remain low. Meanwhile, potential investors are taking advantage of the opportunity to evaluate port assets which may not otherwise have been available.
   “Refinancing assignments have remained stable but are expected to increase once interest rates rise. The projected increase could dampen port valuations in the future as financing costs increase,” Power said.