Ratings agency says VPA decision will deter privatization of big ports

Published April 3, 2013 by Robert Powell, III

Virginia Port Authority’s decision not to turn over its operations to private companies could deter other efforts to privatize large ports, according to a major ratings agency.

The VPA announced last week that it would stay with the Virginia International Terminals as the operator of the Port of Virginia.

The port authority received bids from APM Terminals and a group headed by JP Morgan IIF Acquisitions to replace VIT.

In a statement released Tuesday, Fitch Ratings said the VPA decision “may create negative momentum for other large port privatization projects because of the length of the negotiation, the strong brand names of the bidders, and the meaningful pricing that was considered. …In our view, the privatization of smaller, individual terminals is less likely to be affected.”

Fitch said that, had VPA accepted one of the competing bids, the deal “would have been the first privatization of a major U.S. port facility.”

Fitch noted that instead of going with a private operator paying $3 billion to $4 billion over 20 years, VPA “ is opting instead to reorganize the port’s structure, integrate the operating unit, and cut costs through the elimination of duplicate management positions.”

The ratings agency said the VPA’s decision would not affect its bond rating. However, Fitch said the decision would have widespread influence.

“We believe that those contemplating similar large port privatizations will consider this decision and the events surrounding The Dubai Ports World bid for six major U.S. ports in 1996,” Fitch said. “Both were politically complicated and suggest that future privatizations will be similarly challenging. We would expect the privatization of smaller, individual terminals to continue, as they present smaller political challenges.