Real Estate: Caisse, Dubai’s DP World Create $3.8-Billion Port Venture

Caisse de Depot et Placement du Quebec, Canada’s second-largest pension fund manager, is teaming up with Dubai-based DP World Ltd. to create a C$5 billion ($3.8 billion) venture that will invest in ports around the world, including regions such as Asia and Latin America.

DP World, which operates ports from China to South America, will own 55 percent of the unnamed venture, with the Montreal-based Caisse controlling the remainder, according to a statement issued Friday. The Caisse will begin by buying a 45 percent stake in two of DP World’s Canadian container terminals in Vancouver and Prince Rupert, British Columbia for C$865 million.

Michael Sabia, Caisse’s chief executive officer, said the Dubai-based firm is a world-class port operator that will give his fund better access to potential transactions and drive higher returns.

“We do believe that value over the medium-to-longer term gets created through excellent operations not through financial engineering and therefore we like to invest with really good operating partners,” Sabia said in an interview Friday. “They have certainly established themselves as that.”

Infrastructure is an asset class the Caisse has been targeting for years, amid expectations that future returns will exceed those of publicly traded stocks and bonds. The Caisse, which manages the public pension fund in the province of Quebec, counts a 27 percent stake in Australia’s Port of Brisbane in its infrastructure portfolio.

The Caisse will try to build a portfolio of ports that includes some that operate like a utility, with steady cash flows, and others where there is a strong growth trajectory in volumes and revenue and therefore operating earnings, Sabia said.

“We’re interested in building a portfolio in ports that accomplishes both of those things.” he said.

The Caisse is not the only Canadian pension fund seeing the opportunities in ports. Earlier this year, Canada Pension Plan Investment Board was part of a group that acquired Australian port and rail operator Asciano Ltd. for A$9 billion ($6.7 billion). Ontario Municipal Employees Retirement System also agreed, with partners, to buy a 50-year lease to operate the Port of Melbourne, Australia’s busiest port, for A$9.7 billion.

The Caisse’s new platform will invest in ports and terminals outside of the United Arab Emirates, with a focus on investment grade countries and existing assets in places such as Brazil, Peru, Mexico and across Asia, Sabia said. The Caisse will have the option of co-investing alongside DP World through the joint venture, Sabia said.

‘Crown Jewels’

“What are we looking for in a low-growth world?”  Sabia said. “We’re looking for growth, and this is an operator who shares our view about the importance of growth.”

The investments in Canada announced on Friday comes after the federal government hired Morgan Stanley to explore attracting outside investment into Canada’s ports, including from institutional investors and private equity firms.

Sabia said the Caisse would likely have a look at whatever was being offered in Canada. The two British Columbia ports the Caisse invested in Friday however, are Canadian “crown jewels” because of their exposure to Asian trade.

“We’re quite happy that we have those two and I think now we’ll be looking more broadly,” he said.

Both Canadian facilities in Friday’s transaction are seeking to expand. At Prince Rupert, the deepest natural harbour in North America, work is underway to boost capacity by about 60 percent by July. Vancouver plans a two-thirds increase in container capacity.

The Caisse had about C$255 billion of net assets under management as of June 30. Its investment in the British Columbia ports is subject to a number of regulatory approvals, according to Friday’s statement.

Canaccord Genuity Ltd. acted as financial adviser for DP World, while the Bank of Montreal acted as financial adviser to the Caisse.

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