Furthermore, a port’s location has become a more important credit factor in differentiating among the Chinese ports. Moody’s expects the standalone credit quality of Chinese port operators to widen as a result.
“The ongoing downturn in the iron ore and coal sectors, combined with intense competition from neighboring ports, is threatening a number of ports in north and northeast China that mainly handle commodity bulk cargo,” said Michelle Zhang, a Moody’s Vice President and Senior Analyst. “Along with rising labor costs, these factors will pressure the profitability of Chinese port operators in the next two years.”
According to Moody’s report “Chinese Port Sector: Lingering pressure from overcapacity but major coastal ports are fairly resilient”, operating efficiency and the ability to provide comprehensive and high-quality services along the supply chain will become more important to Chinese ports’ standalone credit quality.
As China’s growth model shifts the contribution of low-value-added manufacturing to domestic consumption and higher-value-added industries, throughput growth will progressively shift from commodities to containerized and high-value goods.
Moody’s says core ports in the three prosperous economic regions: Pearl River Delta, Yangtze River Delta and Bohai Rim are well equipped to benefit from this shift.
While overcapacity will dampen the need for capacity additions, the growth in ship size and the structural change in the cargo mix handled by Chinese ports will drive port operators to improve their infrastructure in order to remain competitive.
As such, Moody’s expects that port operators will incur relatively high capex, making deleveraging unlikely over the next two years.
Further, Moody’s notes that government support remains key to the overall credit quality of major port companies in China. Owner local governments have strong incentives to provide extraordinary support to the ports, given their strategic importance as pivotal infrastructure for, and gateways to trade.
China’s port sector experienced continuous high growth before the 2008-09 global financial crisis. After plunging in 2008 and 2009, it quickly rebounded in 2010 as government stimulus measures took effect.
But China’s slowing economic growth since 2011 has caused total cargo throughput growth to drop to 9.2% in 2013 and 4.9% in the first 11 months of 2014.