* Westports banks on efficiency, higher capacity to grow
* Competition heating up among Malacca Straits ports
* IPO puts money in existing shareholders' pockets
By Niluksi Koswanage
KUALA LUMPUR, Oct 18 (Reuters) - Malaysia's WestportsHoldings says it treats container ships like FormulaOne race cars as they ply their way through the 900-km longMalacca Straits that link Europe and the Middle East to Asia.
Calling itself a pit stop, the port operator backed by Asia'srichest man, Li Ka-Shing, derives 70 percent of its revenuesfrom transhipments where super-sized ships move containerscarrying finished goods to smaller vessels for transport tonearby markets. Its aim is to shift 35 containers an hourinstead of the industry-standard 25, a feat it compares to F1pit crews turning around a race car in seconds.
But it cannot outrun an industry slump.
The shipping industry is in its fifth year of a downturn,despite recent signs of a rise in bookings from China, asovercapacity weighs and big container firms scramble to formvessel-sharing alliances to cut costs.
"The dust needs to settle among the shippers. We call it ashipping downturn but there is container volume growth," saidWestports Chief Executive Officer Ruben Gnanalingam, whosefamily will own a 46.8 percent stake after an initial publicoffering later on Friday.
"Ships can come and go but the port business always survivesso long as economies thrive," he said in an interview withReuters on Thursday.
When Westports debuts on the Kuala Lumpur stock exchange, it is expected to boast a market value of $2.7 billionto become the largest listed port operator along the MalaccaStraits, which carries 40 percent of global shipping trade.
Unusual for an IPO, the $680 million raised from selling a23.8 percent of the company will be distributed to existingshareholders - from billionaire Li to port workers - rather thanused to fund expansion or repay debt. Gnanalingam said the stockmarket listing was more about branding and returning cash toshareholders than raising capital.
To attract big-name customers, Westports, operating fromcentral Malaysia's Port Klang, speeds it up with cranes thatoperate 1.4 times faster than the industry standard, which meansships can get in and out faster. Last year, it kept vesselswaiting just two to three hours for berths compared with anaverage of four hours seen in other ports along the straits.
That is a key distinction for Westports and Port Klang,which face intense regional competition, including two portsbelonging to the country's eighth richest man, Syed Mokhtar AlBukhary, as well as Singapore, home to the world's secondbusiest port.
The connection with Li, who owns more than a fifth ofWestports through a unit of Hutchison Whampoa Ltd, isa competitive advantage, Gnanalingam said.
"Li opens doors. His companies are involved in 50 over portsand they organise these meetings that give you access to thelatest out there from engineering, IT and the business," hesaid. "You share, learn and compete with one another."
Last year, Westports handled 69 percent of the 10 milliontwenty equivalent unit (TEU) containers passing through PortKlang - the 12th busiest port in the world.
"Unlike many Malaysian companies, Westports doesn't see theneed to venture overseas and in this case, its a good thing,"said Hwang-DBS analyst Aizuddin Pengiran. "Their hands are fullin the next five years to grow what is already a solid businessin Malaysia."
CLASH OF THE TITANS?
But the industry is changing.
The world's three biggest shipping firms - A.P.Moller-Maersk's Maersk Line unit, Switzerland-basedMSC Mediterranean Shipping Company S.A., and France's CMA CGM - announced plans in June to share 255 ships and cut costs.
Once European Union anti-competition officials give thegreen light, expected by next year, the trio will have to choosewhich hubs across the world will be their main ports of call.
Their focus is the Asia-Europe line, which has beenlacklustre due to the uneven pace of the global economicrecovery and where overcapacity has driven spot freight rates toloss-making levels.
On Malacca Straits, Westports may lose out to the otherports as no shipper has invested in it, even though CMA accountsfor 10 percent of revenues, bankers and industry analysts said.
Maersk, on the other hand, has a 30 percent stake in SyedMokhtar's Port of Tanjung Pelepas (PTP) on the southern tip ofMalaysia and MSC jointly controls a terminal further down inSingapore with the island-state's sole port operator.
"People forget these three shippers are not about to channelall the vessels in the alliance into one hub on the straits ifthe green light is given from the EU," Gnanalingam said. "Thereis the question of capacity constraints, which every port alongthe stretch is trying to deal with."
BUILDING UP VOLUMES
Westports will expand capacity by 68 percent to 16 millionTEUs, in part to comply with requirements from the Malaysiangovernment before it extends the company's concession by 30years to 2054. Since the IPO money is going to existingshareholders, Gnanalingam said Westports will tap debt marketsto fund growth.
Westports faces keen competition in the battle to ramp upcapacity from politically connected Syed Mokhtar, whoseinfrastructure group MMC Corp controls PTP and JohorPort in southern Malaysia.
PTP has spent $450 million to lift its annual handlingcapacity by 25 percent to 10.5 million TEUs by next year.
"Competition is not a scary prospect in the Malacca Straits.Everyone grows," said Gnanalingam. "When we first started out in1990s, 15 million TEUs a year came through the straits. Now its50 million this year. You can't get that anywhere else."
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