UK: HFW Client Briefing - Evaluating The Options

Last Updated: 5 October 2009
Article by Connie Chen and Samantha Roberts

This article first appeared in the September 2009 issue of Port Strategy.

With the global credit crunch and the ensuing contraction in international trade, many container terminal operators are seeing a dramatic decline in volume and revenue figures.

According to HSBC Global Research, the predicted fall for container throughput for 2009 is 3% for ports globally and 7% for ports in China. As a result, many terminal operating companies are reviewing their existing portfolios and investment strategies.

Some terminal operators will wish to take a 'wait and see' approach to projects where no binding commitments have been made - the downside of which is that a grantor may not be prepared to wait and may prefer to move forward with a competitor instead. However, if the project is still desirable, savvy operators may wish to use this as an opportunity to negotiate more favorable terms with the port authority and/or government agencies.

For example, it was common in the People's Republic of China (PRC) for foreign terminal operators to obtain 50-year concessions from the port authorities. This has been reduced to 30 years in recent concessions to allow the port authorities and government agencies to counter the high demand for deepwater container terminals. The current economic climate may facilitate the reversal of this trend.

It may also be possible for a terminal operator to negotiate a lower investment for participation in a port project.

Once a binding commitment has been given for a project, it can be difficult to renegotiate the terms of the concession agreement. It may, however, be possible to obtain some form of relief for capital injections, if they have not yet been made.

In the current economic climate, concessionaires may be faced with difficulties securing finance for contractual investment commitments and therefore wish to negotiate with their joint venture partners, port authority or local government for an extension of payment obligations.

In some jurisdictions, governments have officially granted relief to investors in financial difficulties. For example, the Chinese government issued a guideline in February 2009 giving extensions to those companies having difficulties meeting their payment obligations. These companies have until end of 2009 to meet the capital requirements.

The guideline was issued in response to some foreign investors unlawfully fleeing from the country without properly following the liquidation procedures leaving many workers unemployed and causing social instability.

If capital contributions have already been made, an investor may wish to repatriate part of the capital already injected back to its headquarters. This is possible financially, if the cash flow of the operating company allows, and legally, if the requirements can be met.

One way to improve the cash flow of the operating company is to convert the structure of the investment from a "transfer" to a "lease" model. This means that instead of paying an upfront lump sum fee for the terminal assets and concessionary rights, the investor will pay for these assets and rights in installments over the duration of the concession agreement.

While the overall profitability of the project may be reduced under the lease model (a potential downside), this will help to minimise the need for a large initial capital outlay. If the investment is already in a leasing arrangement, it may be possible to renegotiate longer or postponed payment terms, payments in arrears, or monthly rather than yearly advanced payments. Cooperation from joint venture partners and, in most instances, approval from government agencies will be required.

In some jurisdictions, a reduction in capital is only permitted in extreme circumstances and special governmental approval is required. Investors also have to provide satisfactory explanations on why a reduction in capital contributions is necessary.

With limited liquidity in the financial markets, investors have to be creative with their transactions. One way is to make the investments using share capital in other companies or by a share swap. For companies interested in the Chinese market, the PRC government has recently issued a regulation formalising the making of capital contributions using equity held in other companies.

For competing terminal operators which have complementary portfolios, a full or partial share swap may help to enhance both operators' presence in a region or operational control in a joint venture despite the lack of finance available in the current economic climate.

A terminal operator may wish to reduce its shareholding in an existing port project to boost its cash reserve or to streamline the operation. Whilst the current bleak economy means that it may be difficult to find a willing buyer, there are a number of parties that may be interested in investing despite the challenging conditions.

Likely buyers could include joint venture partners that wish to increase their shareholdings; companies which have no presence in the region but want to enter the relevant market; or players that are looking for existing facilities with quick returns and immediate cash flows. In actual fact, the current market presents unprecedented opportunities for those companies who, in the past, could not enter the market because the competition was too fierce or the price was unrealistic.

Whether the sale is to a joint venture partner or to a third party, cooperation from other joint venture partners during the sale process is important. Not only may they have the right of first refusal, they may also use other reasons to block the sale if they do not like the newcomer by arguing that the newcomer does not have the financial capability to step into the shoes of the transferor, or the ability to assume those obligations peculiar to the transferor. Approvals from port authorities and/or government agencies may also be required in some jurisdictions.

If it is no longer desirable to stay in the venture, a terminal operator may decide to exit from an already committed port project. It is possible to do so by either divesting the entire share capital, as discussed above, or by requesting an early termination of the operating company.

Usually, both the concession agreement and governing law provide grounds for termination. Companies will need to navigate through these grounds carefully to see if a termination is justified. An unlawful termination may give the counterparty a right to make a claim for repudiation.

Some common grounds available for termination under the current economic climate include significant accumulated losses suffered by the company; operation of the venture being discontinued for a consecutive period; the company's inability to pay debts when due; the continued existence of the company being no longer justified; or the venture having doubtful future prospects.

While these grounds may be available, a terminal operator usually has to overcome certain obstacles and meet certain criteria before termination can be justified. For example, the losses have to reach a certain percentage of the original investment of the company or the investors have to prove that the continued existence of the company would severely damage the interests of the shareholders.

As most companies have only started to see a drop in volume and revenue since the end of 2008, it may be premature for many investors to request early termination. Terminal operators would then need to study the concession agreement and governing law to see if anticipated future losses would justify early termination.

In most jurisdictions, approval from port authorities and government agencies are required for early termination. It is also important that the liquidation procedures set out in the concession agreement and governing law are properly followed to allow for a smooth recovery of the capital.

While the global economic downturn proves a challenge for many companies, it presents a valuable period for companies to improve the cost structure, streamline operations, enter into markets where it was traditionally difficult to break into, or seize opportunities at realistic prices. For companies which can turn challenging conditions into advantages, a softening market means unprecedented opportunities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.