The Port of Southampton is the largest of ABP’s holdings, and is used for container cargo and cruise passengers.Jason Alden/Bloomberg
The Canada Pension Plan Investment Board is casting an anchor into the business of shipping ports, taking a stake in a major British operator.
CPPIB said Tuesday that it had struck a $2.9-billion deal for at least 30 per cent of Associated British Ports (ABP), a network of 21 ports in England, Scotland and Wales. The Toronto-based fund is making the investment alongside British investment manager Hermes Infrastructure.
"We like the diversity those 21 assets give us," said Cressida Hogg, managing global head of infrastructure at CPPIB, singling out the ports' "exposure to different trade flows and local economies."
Global institutional investors have been drawn to infrastructure investments in recent years for their stability and returns over the long-term, matching the long liabilities of pension funds. This has driven up asset prices in recent months.
CPPIB has bid for port assets before, but this is its first successful investment in the space. The pension fund tried to invest in ABP back in 2006; it was ultimately bought by a consortium of private investors and delisted from the London Stock Exchange. The winning bidders included Borealis Infrastructure, a division of the Ontario Municipal Employees Retirement System, as well as the Government of Singapore Investment Corp. Together these investors retain a 70-per-cent stake in ABP.
CPPIB is buying its stake from two other firms that were involved in the privatization, Goldman Sachs Group Inc.'s GS Infrastructure Partners and Prudential PLC's Infracapital. In October last year, these shorter-duration investment funds began looking for buyers for their respective stakes in ABP.
"We were really keen to become part of it because we thought we really understood the asset and could appreciate the value, and wanted to make sure that this was something that landed in our portfolio," Ms. Hogg said.
Much global trade is conducted over water, with roughly 80 per cent of internationally-traded goods moving by ship at some point during their voyage, according to The Baltic Exchange, which tracks the maritime market.
The shipping business is also evolving, with many businesses turning to larger vessels, which require deeper ports. Global operators have been modifying ports and investing in tools such as cranes to accommodate bigger boats and their cargo.
Ms. Hogg says her team has been monitoring deep-sea shipping trends, which they hope will favour ABP's assets. Southhampton, the largest port under ABP's banner, is used for container cargo, cruise passengers and products such as car exports. The port welcomes large ships and has two tides per day, allowing vessels more time to enter and exit, Ms. Hogg said. Growth in the cruise business may benefit this port.
Another aspect of the appeal of ABP's ports lies in their steady streams of income from long-term contracts with clients, as well as the diverse range of businesses relying on the company's infrastructure. For example, though ABP's clients include major importers of coal for use in power generation, its ports also have the facilities needed to import biomass, the wood and plant materials increasingly being by power stations in Britain.
CPPIB has an existing relationship with Hermes Infrastructure, the investment arm of the largest pension fund in Britain, having previously worked with the group on a real estate transaction. Hermes is well-positioned to track changes in the British economy and trade flows that could affect the port systems, which is expertise that CPPIB values, Ms. Hogg says.
The exact terms of the co-investment were not disclosed, but Ms. Hogg said that the split is unequal and that CPPIB would be a "much larger ticket."
The deal is expected to close in mid 2015, pending anti-trust clearances and other approvals.