ESPO Presentation May 2012

2012 European Sea Ports Conference onPORT FINANCING AND INVESTMENS

‘tapping the global investment sector’

John P.M. Verschelden Connecting investors with port infrastructure markets

ESPO-SOPOS, May 2012 www.port-investor.com [email protected]

http://www.port-investor.com/

Port Investor is an activity of Hong Kong based InduStreams Limited

The Mission

InduStreams’ mission is to create a more transparent, connected and informed infrastructure market place

Port Investor was launched as a specific sector pilot with focus on port infrastructure investing and the global port industry

The Vision

UNLEASH the full potential of each port group and market

CONNECT all important port markets with investors and industry players

EMPOWER the market by creating new ways and models for investors and ports to come together

InduStreams & Port Investor



$100+ trillion in the funds management sector

big appetite for increased allocation to infrastructure investments

pension and insurance funds alone may quadruple their infrastructure holdings

no lack of cash in the funds sector

public debt in EU and budget deficits push private financing

Magnitude and appetite



More than $100 trillion just in the funds management sector alone (globally much more when industrials, operators, developers, governments etc. are included).

There is big appetite for increased allocation to infrastructure investments not least given the volatile stock and bonds markets.

Pension and insurance funds alone may be looking to quadruple their infrastructure holdings (and they combined control more than 50% of the global funds under management).

There is no lack of funds and with the public debt situation in most EU countries and many others the need for private financing is maybe at the highest it has been for the last several decades.

Magnitude and appetite (2)



CARGO OWNERSContainer shippingOil shipping, Bulk shippingMineral companiesEnergy companiesAgriculture companies

OPERATORSContainer terminalOil and liquid terminalBulk terminalFree/logistic/property zones

DEVELOPERSConstructionMarine infrastructureEconomic zonesPort industry/logistic zones

PARTNERSSouth American, Asian, Middle Eastern port groups

INVESTMENT FUNDS AND PRIVATE EQUITYMacquarie Infrastructure GroupBrookfield Infrastructure PartnersJP Morgan Infrastructure FundCiti Capital Advisors

SOVEREIGN FUNDSAbu Dhabi Investment AuthorityChina Investment CorporationGovernment of Singapore Investment CorporationMalaysia Mining Corporation

PENSION AND INSURANCE FUNDSPing An (2nd biggest Chinese insurance fund)Ontario Teachers Pension FundATP (biggest Danish fund)APG (biggest Dutch fund, 3rd biggest globally)

DEVELOPMENT BANKS AND INSTITUTIONSWorld Bank and IMFEU related development banks and fundsIFU and other niche banks

Greenfield Brownfield

Acquisition

Container

Bulk

Oil & Liquid

Logistic Zone

Free Zone

Majority

Minority

Financial investor

Developer

Operator$10+ million

$100+ million

$1+ billion

Seed investor

Investor diversity



The investor space and its many constituents is much wider and varied than most think. They vary greatly in their investment objectives, preferences, size etc. From big institutional investment funds with more than $100 billion to small operators and funds with less than $50 million to invest.

The diversity in the target investment size, investment stage, investment horizon, target shareholding and investor role, proposition to project owners etc is vast.

On the one extreme you have very short term focused funds often with high return requirements (15-20%) and on the other you have very long term focused e.g. pension funds with fairly low return requirements (5-10%), each seeking to invest in their own part of the value creation chain (refer later slide).

The great diversity among investors, their preference and propositions to owners offers great potential to develop, fund and operate most projects with reasonable commercial foundation.

Investor diversity (2)



Seed Implement Grow Mature

Expand

Transform

DivestSeeding the investment - from idea, opportunity or need to attractive proposition

Creating the product – from greenfield to operation

Creating the market - building the top line and foundation for efficiencies

Scaling the investment – from low to high yield

Continued value creation…

The value creation chain



The diversity in preference across the chain (not only in investment types) gives further opportunities to make new developments viable and free up capital.

PE’s and operators typically have interest in the implementation/development and growth stage whereas institutional investors (including pension funds) have more interest in the mature stage. The seed stage is a significant challenge for most, often requiring several parties to come together or for someone to play the seed investor role which however is uncommon in the port sector.

In most cases there are better owners out there allowing parties to either free up their capital for other developments or bring down debts or commitments.

An example of a chain with changes in ownership could be a PE together with say a developer doing the seed investing, an operator doing the actual development and growth phases and a pension fund acquiring the asset once it reaches a more mature stage.

The value creation chain (2)



Port Executive Investment Banker

World views



The Port Executive CV

30 years in transportation and port related sectors

Deep and practical industry and management experience

Massive industry executive network (often however local)

The Investment Banker CV

MBA from top business school and fast paced investment banking career

Deal and investment execution experience across many sectors

Strong network within the financial “eco-system”

Perhaps the greatest challenge in tapping into the potential that lies in between the global investor community and the infrastructure sector is the chasm that exists between the people on each side.

A good example would be the port executive on the one side and an investment banker on the other.

Each come with completely different backgrounds, look at value creation from different perspectives and operate in entirely different circles.

Very fundamentally we need to bridge this chasm to create stronger engagement between the two sectors.

World views (2)



Early engagement



Back in the day when the Ford T was a hit it was a very different economic reality. They designed and made one model for the entire market. Today of course none of us would buy a Ford T, we have very specific tastes when it comes to buying a car and none of the major car companies would dream of designing and making a new model without asking the consumer.

Infrastructure is only viable if it has two happy users. The one of course is the physical user, the shipping line, the terminal operator, the logistics company etc. The other is the investor. And whereas the magnitude, appetite and diversity with investors is great, they are also becoming increasingly demanding on what they place their money in (infrastructure no longer has a “safe” label on it).

Engaging the investor community early is free and can often contribute to further options and solutions than was originally conceived. Not doing so has had consequences – failed projects and years of delay. But doing it effectively is key.

Early engagement (2)



Collaborative models



Technology (not least the internet) is allowing business collaboration to take place in a completely different way than was possible just a decade ago and are today widely recognized as the critical component in facing the challenges of tomorrow – whether that is environmental, personal health or something as basic as getting the right infrastructure in place.

It is however not the technology itself that is important, that is just a lever. It is the massive communities out there with expert knowledge and networks to decision makers in hundreds of different fields and sectors that have the potential we need to un-tap, such as the port executive in Ghent and the investment banker in Hong Kong.

The port challenge as we see it is that each port have an amazing depth of knowledge and local community but little engagement with the global investor community.

There are hundreds of collaborative models out there (as basic as forming consortia across phases and investor types). Some are creating online platforms - we think much of the solution lies in the knowledge and capabilities of industry executives and experts.

Collaborative models (2)



Some quotes recently picked up:

“ We fear authorization and approval procedures are complicated and difficult for a Chinese company to invest in Europe. We are not sure how to proceed and hesitant to spend resources.”

“ I’m not sure we are welcome. Are European projects not mainly for European investors, developers and operators?”

“ We have a strong name in China but fear that in Europe our competencies and contributions as a company will not be valued in the same way as it is in China.”

“ We would like to partner with a European port, but don’t know who to engage.”

“ Going international, including investing in Europe, is part of our long term vision, however on we see very few real opportunities to invest.”

Messages from Asia



16

And what is Europe’s reality today…?

Long term limitations on public funding due to budget constraints and the need to bring down public debt

Need to stimulate Europe’s economy with new initiatives and new investments for economic growth and reduction of unemployment

A changed appetite and (often) ability with traditional parties like banks to fund port infrastructure projects

How to break the deadlock?

To create a more transparent, connected and informed ports infrastructure market place (InduStreams’ vision)



APPENDIXINVESTOR PROFILE EXAMPLES



Pension fund example

Objective Pension and insurance funds typically invest to secure long term stable returns (e.g. 5-10%).

Typical investment size Typically look to invest $100-200 million as minimum per investment for their own share and therefore total investment size target often above $500 million.

Role and shareholding target Often limited to that of a “financial” investor and thus typically looking only to take a minority position and for many are not allowed to have the main managing role.

Investment stage and holding period

In general look for acquisition opportunities ore constellations whereby they mitigate development and commercial risk and look to hold assets for long periods (30+ years).

Emerging trends include pension funds seeking to take ownership along side entire port owners (land lords) as that further diversifies their risk across more assets.

Proposition to asset/project owners

Primarily bring lower cost of capital to the table (can live with lower returns) but also sometimes specific capabilities and global brand.



Operator example

Objectives Operators and some developers typically seek to grow their portfolio as primary objective and require medium to high returns (e.g 10-15%).

Typical investment size Most investment sizes are relevant ranging all the way from $10-20 million to above $1 billion (although in latter case it might only be a few in the industry that would want to do that alone).

Role and shareholding target

Most operators would like majority and management and an operational role often a must have.


Do green fields as well as acquisitions often without any specific holding strategy, but most tend to just “hold on” once they secure an investment.


Operators typically bring significant know-how and skill and sometimes actual business to their projects.



Private equity fund example

Objectives Private equity and many PE type infrastructure funds invest on behalf of other funds (e.g. institutional funds such as pension fund) and look to achieve strong returns over a shorter period (e.g. 15-20%), but are typically also willing to take on greater risk.

Typical investment size As with operators PE’s invest in small, medium as well as very large scale investments (substantial diversity).


Many PE’s are looking to take majority but for most however minority is also an option. Some of the more sector specific ones would look to have a strong operational role as well whereas others would not have operational capability or interest.


Most constellations and stages are relevant for PE’s, but acquisitions are gaining popularity. PE’s and similar funds often look to hold the asset for 8-10 years.


Very mixed value proposition depending on the fund in question but do have the benefit of being very focused (once they raise a fund the money has to be spent over a short time period or the clients will withdraw the funds again) and thus tend to work effectively and with urgency.



Sovereign wealth fund example

Objectives Sovereign wealth funds and other government type funds have many different agendas but of course mostly to further the interests of the nation they have been mandated by. Consequently they also operate on a very wide return range (0-20%).

.Typical investment size Work almost exclusively with larger scale investments, most in excess of $500 million and often

more than $1 billion.


Almost exclusively look for a financial stake but may well want extensive influence.


Green fields and brown fields are both scope, however projects typically need to be among key projects nationally or within the region.


Given the government leverage and wide return spectrum SWF’s can come with many different kinds of propositions and sometimes fit where no others are relevant.



More profiles and info…

…is available - feel free to contact us on [email protected]


mailto:[email protected]


APPENDIXINDUSTREAMS AND PORT INVESTOR



InduStreams was founded in 2011 with a mission to create a more transparent, connected and informed infrastructure market place.

We launched Port Investor in July 2011, a specific sector pilot with focus on port investing and the global port industry.


History


UNLEASH The full potential of each port group and market. There is more than $1 trillion in unrealized investment potential. We want to enable an explosion in investment activity.

CONNECT All important port markets with investors and industry players. Together, there are more than 5,000 globally.

EMPOWER The market by creating new ways and models for investors and ports to come together


The vision


Infrastructure

Port Infrastructure

Other Transportation

Energy & Renewables

Social Infrastructure Etc.

InduStreams ultimate scope spans the entire infrastructure sector and beyond. With Port Investor we have a strong base in the infrastructure sector and are already now branching into other transportation segments such as airports, social infrastructure and energy and renewables related.


Status - InduStreams


200+ port groups and 1,000+ investors and executives in the community and increasing

China Port Investor and other regions are being launched Port-Investor.com launched Port Investor LinkedIn group launched (400+ members) Representatives for Asia, Europe, Latin America and Africa in

place already


Status – Port Investor


For ports we primarily collaborate with three sides 1) port groups 2) project and asset owners and 3) investors

Investors engage us to find investments that fit their specific requirements

Project owners engage us to solicit investors or consortia of investors

Port groups engage us to reach out to the wider investor community to fast track infrastructure developments and seek collaborative solutions

25+ ENGAGEMENTS WORDLWIDE


Global engagements


Economy & Finance

ESPO Presentation May 2012