India's Adani Group, which won the privatization tender for Haifa Port with Gadot Chemical Terminals, Tena Fund and Value Base, plans financing 75% of the deal with loans from a consortium of banks and the Israeli capital market. The financing plan was contained in a presentation to investors published in India by Adani Ports and Special Economic Zone Ltd (APSEZ).
The company expects to invest NIS 975 million of its own capital with the remaining NIS 2.925 billion coming from debt that it will raise. The company writes in its presentation that the loans will be repaid over 25 years from dividends and operating profits funds generated from the Haifa Port company.
According to the presentation, the average annual repayment of the equity invested by APSEZ in the deal with be about 90% in the coming 10 years. The presentation also attributes great importance to the rise in value of the commercial real estate development of the port area, which includes a seafront plan to build hotels and commercial areas, which will need approvals.
1.18 million square meters by 2027
Adani Group, headed by chairman Gautam Adani presents offers two scenarios in the presentation for repaying the investment in Haifa Port. According to the basic most positive scenario the company plans an unprecedented development boom. Adani plans using Haifa's port NIS 2.08 billion to develop the real estate on land 10 times the current size of port buildings, from 100,000 square meters at present to 1.18 million square meters by 2027. The capital cost of this development will be NIS 900 million between 2023 and 2027.
In this scenario, it will take just six years to pay back the loans it is taking, on the basis of cash flow to APSEZ.
According to a more negative scenario, the Indian company estimates that if there is no real estate development , and the amount of trade at Haifa Port does not change in the coming years, it would take 25 years to repay the loans based on expected cash flow.
According to the positive real estate development scenario, Adani estimates that by 2028 it will hold seafront real estate producing annual income from rents of NIS 469 million and 47% EBITDA producing NIS 222 million.
Selling real estate would cover investment in the port
Adani has even published an additional and interesting assessment that reveals its world outlook. The presentation says, "If it is decided to sell our real estate businesses in Haifa Bay in 2028, assuming a discount rate of 7%, the proceeds for the sale of the real estate alone in 2028 will be almost NIS 3.2 billion and will be three times the total capital investment in the port by Edani and Gadot in the acquisition today. It will also be three times the development costs of the properties."
According to the company's base scenario, competition with the neighboring Haifa Bay Port, which is operated by China's SIPG, will reduce the market share of the "old" Haifa Port in the containers sector from about 47% last year to only 39% in 2022 and to 35% in 2023, if there is some recovery afterwards. On the other hand, it predicts that the port's share in the unloading and loading of general and bulk goods will increase from 16% in 2021 to 37% in 2027.
However, sources in the shipping industry and ports in Israel cast doubt on some of the basic assumptions in the presentation. Industry sources say that transferring the seafront real estate to the tender winner has not yet been closed and also depends on local approvals, which may be very lengthy and change, especially when it comes to building permits for hotel real estate.
Industry sources also note that the tender has various limitations and conditions on the use of the funds in the port coffers for the purpose of withdrawing dividends and the date of release of the funds is dependent, among other things, on the deepening of the port, or the construction of new wharves. Sources also observe that raising debt on the aforementioned scale in Israel may be lengthy and complex.
Hotels, duty free stores and offices
Adani's presentation goes into extensive detail about plans to develop the seafront and the expected revenues it will produce. Two hotels are planned - a 150-room four-star hotel and 200-room two-three star hotel. Also on the drawing board are a 10,700 square meter Sarona-style food market, an aquarium, Lego-land, virtual reality facility, nightclub, 29,000 square meters of duty free stores, and offices in the areas buildings with preservation orders.
The presentation also sets out the expected income from these commercial projects. NIS 600-750 per night from the hotels, NIS 200-260 per square meter per month from restaurants and duty free stores, NIS 55-75 per square meter per month from office space, and NIS 40-55 per square meter per month from logistics areas.
The presentation, in which many of the plans would have a long way to go before being approved, shows that the Indian company sees Haifa Port as something of a gold mine.
Published by Globes, Israel business news - en.globes.co.il - on August 4 2022.
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