Brexit to bruise British ports

Associated British Ports, the UK’s largest ports operator, has been put on negative watch by Fitch despite its “resilient” business profile and robust creditor protections, the rating agency said last week in a note.

Fitch maintained its A- rating but said it had revised its outlook on ABP Finance, the group’s financing vehicle, to negative from stable.

The revision was largely due to pressures on ABP’s five-year leverage forecasts, “due to recent volume underperformance and the potential impact of Brexit over the next few years,” Fitch said. The agency has cut its GDP growth expectations for the UK since the country voted to exit the EU on 23 June, to 0.9 percent from 2 percent for 2017 and 2018.

“This lower forecast, together with recent sterling depreciation, is expected to negatively impact volumes at ABP, particularly in the short-term as the U.K's trade flows have a predominance of imports over exports,” Fitch added.

From 2006 until 2015, ABP was owned by a consortium consisting of Goldman Sachs Infrastructure Partners, Borealis Infrastructure, GIC and Infracapital, on behalf of Prudential.

Goldman Sachs and Infracapital sold their stake in March last year, with a team led by the Canadian Pension Plan Investment Board and Hermes Infrastructure acquiring a 33.3 percent interest in the business. In addition, the Kuwait Investment Authority purchased a 10 percent share of the company.

ABP, CPPIB and Hermes declined to comment, while Borealis, GIC and KIA did not respond to a request for comment before press time.

ABP’s rating remains higher than that of rival DP World, which is both listed in London and Dubai. While the “well-diversified ports group” has a net debt/EBITDA ratio of 4.3x – compared to ABP’s 7.2x – Fitch sees its business as potentially less resilient.

“Unlike ABP which fully owns its assets, DP World's portfolio is mainly concession-based. Additionally, it does not have recourse to material rental income, minimum guaranteed volumes, or co-investments with tenants in major capex projects and its debt structure has weaker structural protection, thus justifying the rating difference,” the agency said.

In November 2015, the company, which is rated BBB, bought the 49 percent of DP World Southampton it did not already own from ABP.