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Local News>Burdened by debt, Port Authority to refinance $10b of its loans - To follow Merrill Lynch's adviceFinancial Gleaner |
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The Port Authority of Jamaica's (PAJ) debt burden is overpowering its balance sheet, and the agency is predicting that the situation will worsen this year with expectations that its long-term loans will shoot up by almost $10 billion or 46 per cent, from $21.8 billion to just under $32 billion.
It will take the PAJ about 20-25 years to pay down the loans, PAJ vice-president Pat Belinfanti said Thursday.
The PAJ, a star performer to date among public sector agencies, has seen big jumps in its debt in previous periods - for example, its long-term loans climbed from $13 billion to $18 billion at March 2007 - when the agency was borrowing heavily to finance its expansion.
Cruise-Development Project
The added liabilities this year, said Belinfanti, were largely linked to the Falmouth cruise-development project.
This year, the PAJ has budgeted just under $699.6 million of capital spend to wrap up its expansion of the Kingston Container Terminal, to build the trans-shipment port's capacity to 3.2 million TEUs, while in previous years annual investment has ranged between $4 billion and $6 billion, according to finance ministry data, or at least seven-fold the current earmark.
Last year, the port's throughput fell to 1.8 million TEUs, from 1.98 million TEUs in 2006, but asked whether the multibillion expansion programme was a waste of funds, given the declining utilisation, Belinfanti said: "Certainly not."
"A rational examination of the shipping industry will reveal that like in any other sector, there will be varying business cycles and that most ports at some point will experience a reduction in business," he said. "The objective is to ensure that such reductions are temporary and that the competitive nature of one's operations will lead to renewed and increased business. The Terminal has steadily increased its productivity over the past year and continues to be an attractive alternative for shipping lines."
Plans To Refinance
The Port Authority plans to refinance US$143 million (J$10.15 billion) of the loans on its books this year - which could either mean replacement of current debt with cheaper loans, or extending the maturity profile of the debt on its books - the intent being, said the latest finance ministry report on public sector bodies, "to reduce the short-term demand on its cash portfolio."
At year-end March 2008, PAJ cash balances were down to $192 million, from $877 million a year ago. For the past two years, it has maintained a negative working capital position of more than $2 billion, with current liabilities outpacing short-term assets two to one.
Dangerous Position
There are signs that the PAJ recognised that it was heading into a dangerous position. The agency hired Merrill Lynch to restructure its balance sheet, but has said little about the results.
"We have been offered various refinancing alternatives to restructure PAJ's balance sheet, which we are exploring, the details of which cannot be disclosed at this time, given that such disclosure can impact the market, which we may seek to access," Belinfanti said.
"We have accepted the recommendation and are awaiting the necessary governmental approval to proceed."
Not only are the Port Authority's total liabilities more than two-thirds its assets, but they are also almost five times its reserves of $6.2 billion, and nearly triple its declining revenues of $11 billion.
Millions In The Red
The port lost business with the pullout of Maersk last year, a period in which its $1.7 billion surplus recorded at year end March 2007 was totally erased and the PAJ had plunged $621 million into the red.
The PAJ says it is still in discussions but has "reached no concrete agreement that would replace the Maersk volumes".
Port boss Noel Hylton is leading a marketing thrust to woo companies here, but Belinfanti said it would take time. Notwithstanding, the Port Authority said it was confident of its ability to service its debt obligations, saying future earnings would be adequate cover.
business@gleanerjm.com