MICHAEL Lee-Chin made more than double his investment in Kingston Wharves Limited (KWL).
Having paid $610 million (US$10 million) for a chunk of the cargo handler a decade ago, Lee Chin, through his majority-owned National Commercial Bank (NCB), offloaded the shares for $3 billion (equivalent to US$26 million) on Wednesday.
NCB indicated that it reviewed its investment holdings and concluded the KWL fell outside its core strategic priorities at this time.
For Jamaica Producers (JP), which is now the largest shareholder in KWL, the deepening of its investment in the container handler stands to yield significant benefits to the food conglomerate when planned expansion at the Kingston port doubles capacity at the wharf.
“We believe that Kingston Wharves has the right combination of assets and stakeholders to play an important role in the development of Jamaica’s logistic sector and that has motivated us to deepen our investment,” Jeffrey Hall managing director at JP told Caribbean Business Report.
JP on Wednesday acquired $1 billion of the shares sold by NCB. Seaboard a global food, energy and transportation company listed on the New York Stock Exchange purchased $2 billion worth of shares or 21 per cent.
It resulted in JP becoming the largest shareholder in the wharf, which is amongst the island’s busiest. The acquisition increased JP’s ownership from 30 to 42 per cent.
Hall hinted that the stock price could increase with the development but did not give targets.
“We believe it will be satisfactory. We look at the blended share price and the future trajectory for that share price,” he said.
The stock traded up 29 per cent on Wednesday to $6.50 but hasn’t been able to break beyond the $8 mark in at least two years. It follows a 52- week low of $4.90 and $4.50 in 2013.
The development also seeks to raise the return on equity (ROE) for the cargo handler. ROE hit 6.58 per cent for its latest financial year ending 2013, but typically hovers around five per cent at the port operator, which KWL management explained reflected the capital-intensive nature of the business.
“The transaction demonstrates our commitment to building logistics as our core business alongside our work to build the specialty foods group,” said Hall. “We now see logistics as part of our core.”
In 2012, KWL raised $1.8 billion by selling a 25 per cent stake in the cargo handler to Jamaica Producers Group (JP) at the beginning of the year to finance the expansion plans.
Kingston Wharves’s terminal has a 1.7 kilometre continuous quay that provides nine deep-water berths for roll on-roll off, lift on-lift off, general break bulk, containerised cargo and bulk cargo vessels.
JP, a specialty foods and logistics group operating in the Caribbean and Europe, holds some $5.9 billion in equity.
Hall indicated that the purchase of the NCB shares would be financed by a mixture of debt and equity.
Seaboard is now the second largest shareholder in KW.
Through its Seaboard Marine Division, it operates a containerised shipping service between the United States, the Caribbean Basin, and Central and South America. Seaboard operated as a customer of KW for decades, the company indicated in a release.
KWL will invest US$70 million in a three-part expansion to double its throughput to one million 20-foot equivalent units (TEUs).
It is aimed to prepare the cargo handler for Caribbean or Chinese competition.
Phase one entails building a modern 24-hour logistics complex with modular warehouse space, the acquisition of gantry cranes, the closure of Third Street, the relocation of berth 7 warehouse to a newly refurbished facility, the relocation of transshipment and domestic car parks, and the demolition of on-dock warehouse and operational buildings.
The second phase will allow the port to handle larger post-Panamax vessels including extending the berth by 50 feet, dredging along the berth to over 15 metres, along with the installation of new cranes. Phase three includes expanding the port and motor vehicle trans-shipment operations to drive TEU throughput.
KWL’s current capacity stands at roughly 500,000 TEUs, management told CBR at its annual general meeting in June.
It actually handled some 204,200 trans-shipment TEUs and 90,870 domestic TEUs in its latest financial year, according to its 2013 annual report.
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JP deepens investment in port ahead of doubling of wharf capacity
