Flash Fixed Income Report /
Turkey

Global Ports: Early repayment could cheer bondholders; upgrade to Hold

    Tellimer Research
    26 November 2019
    Published byTellimer Research

    A stake in Global Ports Holding (GPH), the issuer of US$250mn 8.125% notes due 2021, could be sold and the proceeds used to finance the acquisition of new cruise ports, according to Bloomberg. GPH is also considering a sale of two container ports, including Akdeniz, the main cash generating asset which alone contributed 65% to the company’s consolidated EBITDA in H1 19. 

    The bond documentation allows sufficient flexibility to structure the sale of the stake in GPH so that it does not trigger a change of control put. In case of the commercial ports sale, a part of the cash consideration could be used to repay debt. We don’t expect the sale of the ports to generate enough money to fully redeem the outstanding bonds ahead of their maturity, but the company’s debt could be reduced substantially. 

    We upgrade GLYHO 21s to Hold with the view that a corporate transaction could offer an early exit option for bondholders. Having said that, if none of the transactions happen, the company will remain a highly leveraged business pursuing ambitious growth through M&A.

    Sale of stake in GPH. The company is listed in London with a US$212mn market cap. Under the bond documentation, a change of ownership in the issuer can trigger a change of control put if a third party becomes the owner of 35%, or more, of the voting power and, Global Investment Holdings (GIH), the parent company of GPH, does not own a larger percentage of the voting power either directly or indirectly. As of September, GIH held 60% in GPH. This implies that up to 35% could be sold without triggering a change of control put. At current equity price this could equip GIH with cUS$74mn of additional cash. Compared with GPH’s revenues (US$125mn in 2018), the amount is quite significant.

    Sale of commercial ports. The main container port Akdeniz in Turkey is a restricted subsidiary and guarantor of US$250mn notes. According to bonds documentation, the issuer and restricted subsidiaries are permitted to sell assets only if net cash available from such a transaction (which can be substantially below sale price due to the deal structure) is applied to repay senior debt, acquire additional assets or make capital expenditures within a year. According to the Bloomberg article, the company’s intention is to use proceeds from asset disposal to reduce GPH debt.

    Potential valuation of commercial ports. A quick glance at equity valuations of smaller ports show that current year EV/EBITDA ratios range from 5.5x to 7x. Applying these multiples to the commercial ports’ annualised H1 19 EBITDA delivers US$250-300mn, a valuation which could cover US$250mn bonds or 60-70% of the company’s total debt. Both the transaction and price are subject to uncertainty. Depending on the stakes in commercial ports sold, valuation negotiated with the buyer and the share of proceeds allocated by GPH to repay debt, there could be various outcomes for bondholders. However, an opportunity of an early repayment should support bond prices.

    GPH is a highly leveraged name. In H1 19, GPH’s trailing 12M revenues amounted to US$123mn, EBITDA stood at US$73mn, total debt was US$411mn and net leverage ratio came to 4.8x. Calculated for the purpose of debt incurrence test, net leverage was 4.2x with a threshold of 5x in H1 19, according to the company.