TTI Long Beach to MSC

News 21 Dec 2016 by WCN Editorial

The complicated sale of Hanjin’s stake in Long Beach’s Pier-T Terminal is nearly resolved. MSC has emerged as the victor, with a deal that involves two new cranes, a two year payment guaranty for the Port of Long Beach and a $10M cash injection into TTI.

𝕏

One of the most valuable terminal assets in Hanjin’s portfolio is its 54% stake in TTI Long Beach. Total Terminals Inc holds the lease on the 385-acre container terminal at Pier-T, and is a joint venture between Hanjin Shipping (54%) and Mediterranean Shipping Company’s (MSC) terminal subsidiary Terminal Investment Limited (TIL).

In early December MSC and Hyundai Merchant Marine (HMM) placed a joint bid for Hanjin’s stake. After Korea Line withdrew its bid, MSC and Hyundai were competing against a Korean private equity fund. Details of the negotiations were never made public, but there were obviously concerns at the Port of Long Beach about HMM’s financial status. To further complicate matters MSC asserted in a US court filing that it had first right of refusal under TIL’s JV agreement with Hanjin for TTI, while back in Korea Hanjin Shipping had put up the lease as security for a loan from Korean Air.

After HMM withdrew from their joint bid (citing concerns over its low credit rating), TIL emerged as the successful bidder. The deal still needs approval from US Authorities and the Port of Long Beach.

For the Port of Long Beach, any deal involving Hanjin and TTI is a complicated matter. Hanjin’s demise occurred as it and the Port were part way through an agreement where Hanjin was buying the 14 STS cranes at Pier T. The port sold TTI the cranes for US$71.7M in 2014, consisting of $58M in cash, $5M in instalments over five years and the balance through an increase in its Guaranteed Annual Minimum Rent. TTI also agreed to raise at least 10 cranes within 40 months, or purchase newer taller ones.

To tidy up the crane sale issue TIL and TTI have requested that the Long Beach Board of Harbor Commissioners agree to amend the 2014 contract for the sale and purchase of the 14 cranes. This would change the original agreement to require that six, and not ten, cranes be raised, and commit TTI to installing two new cranes capable of handling 20,000 TEU vessels by 1 January 2020. TTI is on the hook for liquidated damages of US$50,000 per month till August 11 2027 if it does not meet these commitments.

Addressing the port’s concerns about its current finances, TTI is required to provide a “supplemental two year payment guaranty” to the port, while TIL is to deposit US$10M into TTI’s bank account to give it working capital.

That would seem to resolve the most immediate issues, but the sale has much wider long-term implications. Before it took the lease at Pier-T, Hanjin called at Pier-A (operated by SSA Marine). Hanjin’s departure created an opportunity at Pier A, and MSC then entered a joint venture with SSA Marine for a 25-year lease on the facility. That agreement includes a minimum payment agreement of US$19M per year.

As soon as it was known that MSC wanted to increase its stake in TTI, speculation began that MSC would consolidate its business at the facility. This would obviously have a large impact on Pier-A, and it is not clear that it would have enough business if MSC left to cover its minimum payment commitments.

The deal also poses a question for the 2M Alliance – Maersk Group company APM Terminal’s operates Pier 400 in LA, while MSC will now control 3M TEU of capacity in Long Beach.