Blue Ocean: Hanjin tough

Hanjin Shipping's spin-off of six container port assets into a joint venture with the Macquarie Korean Opportunity Fund (MKOF) marks the first application of the hybrid leveraged/ project finance structure to ports assets in Asia. The $870 million deal, which closed in December 2006, but syndicated in March 2007, is also one of Macquarie's largest port investments to date. To a structure that has become popular in Europe and North America, the buyers added a greater number of currencies and a wider range of jurisdictions for banks to embrace.

In what was a strong year for ports financings, Blue Ocean neatly includes the high points of the sector: It is built on a diverse network of locations, with both land assets and services, and whereby Hanjin's shipping operations reduce lender exposure to patronage-risk.

The debt financing was syndicated in three currencies to banks in three booking centres, and demonstrates sustained interest in ports assets worldwide. The deal also involves numerous international legal and financial jurisdictions, yet debt for the two borrowing entities and the equity portion were closed simultaneously.

The deal involves MKOF's acquisition of a 40% stake in the vehicle that owns the six container terminals. Hanjin previously owned the terminals outright, and following the deal retains a 60% interest. The total acquisition, through a joint-venture special purpose vehicle, was valued at $870 million, based on the enterprise value of the assets at financial close. The deal featured $450 million in term loans, and $50 million in revolving debt.

The deal included $420 million in equity, which was duly split 60/40, and parent company Hanjin Group likely received roughly $520 million in proceeds from the deal, even if it contributed the assets in kind.

The deal involved two borrowers, Total Terminals International, based in the US, and Hanjin Pacific Corporation, domiciled in Korea. The assets are in Kaohsiung, Taiwan; Osaka and Tokyo, in Japan; the Californian ports of Long Beach and Oakland, and Seattle, Washington, in the US. The borrowers provide container services at both ends of a popular, and frequently congested, freight route, which connects Asia and the US West Coast.

Calyon was mandated lead arranger, bookrunner and swap co-ordinator on the debt, with Mizuho (joint bookrunner and documentation agent), BNP Paribas, Shihan Bank, Woori Bank also sharing MLA status.

The international lenders entered the deal at a relatively late stage, after the sponsors encountered some difficulties in meeting the acquisition price in the Korean debt markets However, following the appointment of the arranger group, the deal closed in under two months, and syndication proved popular.

The debt was provided in three currencies, with a total of six tranches. The US dollar, Japanese yen and Taiwanese dollar facilities each support the assets in their respective country. The purpose of the multiple currency financing was to minimise foreign exchange risks by matching the currency to the revenue streams. The split between currencies matches the relative weight of each set of operations within the portfolio.

The three facilities each featured a term loan and a revolver. The US portion of the debt was $305 million ($275 million term loan, $30 million revolver), the Japanese piece was ¥15.43 billion (equivalent to a $125 million term loan, and a $7 million revolver) and the new Taiwanese dollar piece was NT$2.05 billion (equivalent to a $50 million term loan, and a $13 million revolver).

The debt was also syndicated in three currencies and was, overall, 50% oversubscribed. The participating banks were AIB, BBVA, Depfa, Banco Espirito Santo, KBC, Natixis, WestLB (US dollars); BBVA, DEPFA, HSBC, WestLB (Japanese yen); KBC, Shanghai Commercial & Savings Bank, Taibei FubonBank (new Taiwanese dollars).

The three term-loan tranches have a five-year maturity, and involve bullet payments at maturity. The revolving tranches have a three-year maturity. The revolvers will be used for capital expenditure purposes at the respective terminals.

All the currency tranches are subject to the same pricing; 95bp over Libor for the term loans, and 100bp over Libor for the revolvers. The debt to Ebitda ratio at financial close was 8.8x (according to 2006's pro forma figures), and the loan is believed to feature the customary financial covenant package.

Though less highly levered than other ports deals in 2007, which started around the 14x Ebitda mark, the sponsor achieved pricing which was also significantly lower than the starting marks for pricing on similar deals in North America that closed before the market crashed (around 140bp over Libor).

Hanjin Shipping, which is a subsidiary of the Hanjin Group, will continue to run the operations at all six terminals, with no change to management. In addition to these six container terminals, Hanjin Shipping has five other container terminal operations in its existing portfolio, in Antwerp, Belgium, and the Pusan, KMT/KTC, Kwangyang and Pyeongtaek terminals, all in South Korea.

As a shipping company, Hanjin can guarantee that the terminals are used. This marks a shift from outright sales of standalone operations to independent private equity operators, where acquisition lenders are exposed to substantial competitive pressures.

The deal is notable among the 2007 ports transactions, because it involves container terminals in an international network, all of which see heavy traffic volume. It also includes stevedoring and similar freight-related services, as well as shipping contracts. Few comparable deals have included such a broad mix of assets.

Total Terminals International (USA) Hanjin Pacific Corporation (Korea)
Status: Closed March 2007
Size: $870 million
Location: Long Beach, Oakland, Seattle (USA), Tokyo, Osaka (Japan), Kaohsiung (Taiwan)
Description: Acquisition of international ports assets
Sponsor: Hanjin Shipping [a subsidiary of the Hanjin Group] (60%), Macquarie Korean Opportunity Fund (40%)
Debt: $500 million
Mandated lead arrangers: Calyon, Mizuho, BNP Paribas, Shihan Bank, Woori Bank
Maturity: Five years (term loans); three years (revolving facilities)
Financial adviser to sponsor: Macquarie
Sponsor legal: Pillsbury, Anderson Mori (Japan), Lee & Ko (Korea), Tsar & Tsai (Taiwan)
Lender legal: Shearman & Sterling
Traffic adviser: Mercator
Technical consultant: Moffatt & Nichol