The privatisation of two ports in the state of New South Wales was the largest acquisition transaction in Australia in 2013 and the fourth largest Australian privatisation to date. The deal closed five days after bids went. Competition for the assets was strong and the sale came in well in excess of the retention value of the assets, and the second-placed bid was only 1% shy of the winning offer.

Port Botany is Australia’s second largest container port and the major port in North South Wales, serving Australia’s commercial capital, Sydney. Botany handles over A$60 billion of trade per year, about a third of Australia’s container trade and also has a monopoly on coal shipment in the city. Port Kembla, located in Wollongong, is Australia’s largest vehicle import facility, largest grain handling terminal and second largest coal export port in North South Wales.

The state government offered both ports under a single 99-year lease. “As potential bidders we made clear to the state that we wanted a package combining the two ports to be made available, in order to maximize certainty. Kembla could be a competitor, but could offer a complementary growth option as Port Botany reached capacity over the longer term,” says Mike Hanna, head of Australian infrastructure at IFM Investors.

“A key factor in boosting the attractiveness of the Port Botany asset was the state removing the cap on the container volumes that Botany can handle, which was significantly less than capacity,” adds Hanna. The state removed a cap of 3.2 million TEU per year, far below the port’s potential capacity of 7 million TEU.

The winning consortium beat rival bids from a consortium of Canadian Pension Plan Investment Board and Queensland Investment Corporation, and another consortium of Hastings Funds Management and Ontario Teachers’ Pension Plan.

The financing signed on 12 April and reached financial close on 31 May 2013, with the sponsors following the clear timeline that the state laid out in its request for expressions of interest in October 2012.

The senior debt came from ten lenders: ANZ, BTMU, CIBC, Crédit Agricole, DBS, ICBC, ING, KDB, NAB and SMBC. It breaks down as a A$962.5 million 5-year bullet loan, a A$962.5 million 3-year bullet loan, an A$85 million capital expenditure facility and a A$10 million revolving credit facility. The sponsors contributed A$3.05million of equity for conservative leverage of below 40%.

The loans priced competitively, at 200bp over 3-month BBSY for the 5-year piece, 175bp for the 3-year loan and 170bp for the other two facilities. “The circumstances at the time were a cause for concern, with loan margins beginning to trend up as tensions on the Korean peninsula escalated,” says Hanna. Furthermore New South Wales, with A$55 billion of net debt, was facing a negative outlook on its AAA rating and the sale of the assets was the subject of intense political lobbying.

The sale price of A$5.07 billion had to reflect recent capital expenditure by the state in expanding the ports. At the time the sale of the concession was closing, a new stevedore terminal for Port Botany was at an advanced stage of completion, along with the Enfield intermodal terminal, as well as investment to increase berth capacity. Those expansion projects, on which the state spent A$1 billion, have since been completed, and have already begun generating additional revenue.

The state will invest net proceeds from the sale in its newly established infrastructure fund Restart NSW, which provides funding for greenfield projects, and some of the funds are already earmarked for the WestConnex toll road and the North West rail projects.