Port Authority shuns debt in new financing strategy
The Port Authority of Jamaica, PAJ, has upended its financing strategy and is now paying for more of its big-ticket projects out of pocket, a change of financing strategy that turns the page on years of massive government-backed borrowing to build out and modernise the country's seaport infrastructure.
From a high of more than US$400 million a few years ago, the PAJ's debt portfolio has been deliberately brought down to under US$200 million.
"Our loan portfolio has been substantially reduced. We are no longer relying on the government," PAJ senior vice-president for finance, corporate planning, information services and materials management, Elva Williams-Richards, told the Financial Gleaner.
"The major loan that we still have is PetroCaribe," she said.
The PetroCaribe Develop-ment Fund, PDF, set up to manage money flowing from the deferred-payment oil deal Jamaica has with Venezuela, has been a major lender of cheap development financing to several public sector entities, including the PAJ.
Figures provided by the PDF show a total of US$166.3 million in loans to the PAJ over the 12-year life of the fund. The Port Authority 2017 annual report notes that it is still servicing a US$126.5-million loan from the PDF which has a repayment term of 2012 to 2037.
The PAJ is also carrying a 40-year US$2.5-billion 'National Commercial Bank-Sagicor Life loan' fixed at 14.5 per cent per annum, according to the annual report.
Williams-Richards said the about-turn on financing has also seen the PAJ borrowing in Jamaican dollars rather than US dollars, if and when it has to turn to debt.
"We earn US dollars and borrow in Jamaican dollars to help hedge against the movement in the US dollar," the VP said.
As to what has changed to put the port company in a position to shun debt for self-financing, Richards said the turning point was the offloading of the operations of the Kingston Container Terminal to private investor Kingston Freeport Terminal Limited, KFTL. Kingston Freeport is the management vehicle of the consortium comprising big French shipping company CMA CGM and United States-based Terminal Link, a stevedoring and marine terminal services provider, to operate the Kingston port concession.
Some US$75 million in upfront cash flowed to the PAJ from the 30-year concession agreement, reached in 2016, and the public body continues to receive fees and revenue share amounting to US$30 million.
KFTL is responsible for financing, expanding and maintaining the port over the period and has already invested heavily in expanding capacity at the facility.
"We have used a substantial portion of that (US$75 million) to reinvest and used some to pay down some of our debt," Williams-Richards said regarding the deployment of the upfront cash from the concession deal.
The PAJ's role is now said to be focused on risk management pertaining to the port investment. "We don't just sign an agreement and walk away. We have to make sure it works and is profitable," Williams-Richards said of the PAJ's current oversight of the concession.
For fiscal year 2016-17, Port Authority raked in $14.6 billion in total revenues and posted an operating surplus of $6.7 billion.
The public body's total assets were estimated at $61.4 billion for the year. Along with its port holdings, the Port Authority also manages some 1.4 million square feet of BPO office space in Kingston and Montego Bay.
Expansion into Portmore
Williams-Richards said the PAJ has just completed a 63,000-square-foot BPO building at the Montego Bay Free Zone and is now investing US$22 million to US$23 million in Portmore, St Catherine, to expand existing BPO facilities there.
The agency is putting in an additional 157,000 square feet of space in Portmore, to be finalised between December 2018 and March 2019.
"All that BPO investment is being financed out of pocket," Williams-Richards said.
The new debt-averse PAJ has not shied away from heavy investments elsewhere, too. It has been expanding the cruise and cargo ports it owns in Montego Bay, its new mega cruise pier in Falmouth, its two cruise terminals in Ocho Rios, as well as smaller ports in Port Antonio, Portland.
In Ocho Rios, from where Williams-Richards spoke with the Financial Gleaner, the PAJ poured funds into the construction of the Ocho Rios Fishing Village at a cost of more than $220 million. A former eyesore, where fishers sold their catch on a strip of beach close to the Reynolds Pier - a port which doubles as a cruise terminal and shipping dock for building materials - the village has been transformed into a modern shopping complex and attraction with shops operated by many of the fishers who operated on the beach.
Williams-Richards said some US$25 million has been invested between the fishing village and the redevelopment of the Reynolds Pier, which has been spruced up, expanded and strengthened to accommodate larger vessels.
Other investments include the dredging of the Port Antonio Harbour for small vessels and the construction of craft and artisan villages in Montego Bay and Falmouth.
In Montego Bay, the PAJ is said to be spending upwards of US$30 million to expand the cruise pier there. All told, the PAJ splashed out close to $8 billion in project financing last year, the bulk of that money coming from revenues, its senior executive said.