At this time, the transfer of ownership of the Haifa Port Company from the state to the winner of the port privatization tender, the Israeli Gadot group of companies and the Indian Adani, was completed.
The Adani-Gadot group, which won the tender last July, stunned the industry officials with its willingness to purchase the port in its entirety at a total price tag of NIS 4.1 billion.
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The financing model included equity of approximately NIS 1.2 billion, owner loans in the amount of NIS 1.6 billion that will flow to the State of Israel, as well as a loan of NIS 1.1 billion from a consortium of Israeli entities led by Mizrahi Tefahot Bank, in which the International Bank and Meitav Investment House also participated. This is a bridging loan given to Adani for a period of two years.
In November, the group announced the closing of the financing, and today (Tuesday) the final step took place, which includes the signature of the regulators and the board of directors on the transfer of ownership of the company’s shares from the state to the group.
The Adani-Gadot Group purchased the Haifa port according to an offer of NIS 3.9 billion, which is considered to be NIS 4.1 billion, because the state stipulated in the terms of the tender that a strategic investor who specializes in operating ports, shipping or terminals will receive an additional NIS 200 million on paper. The offer was more than a billion shekels higher than the next offer, according to the estimates of the Rami Onger group and the Generation Fund, which offered “only” 2.65 billion shekels.
The winning group believes that they made a good deal, since the port’s coffers have about a billion shekels earmarked for upgrading the port’s infrastructure, so that it can compete with the Gulf port operated by the Chinese SIPG company, and the purchase also includes the real estate development of the seafront in Haifa and a geographical area that positions the port as a large most in space.
A milestone in port reform
Adani-Gadot surprised not only with the price but also with its ability to close the deal, despite the doubts expressed by some of the factors in the industry. After the win, financial papers were published that talked about how the Adani Group is highly leveraged. One of Credit Suisse’s companies published an assessment according to which “a bad scenario could lead it into a spiral and a massive debt trap.” However, the group published a special presentation with data showing that its leverage is reasonable, and its stability is solid – and the report has been corrected.
The transfer of ownership is a major milestone in the reform of the ports that began at the beginning of the millennium, within the framework of which two more private ports were established – the Gulf Port near Haifa and the Southern Port near Ashdod. The sea department, which is the “shelter” of the ports, was taken out of the government ports to a subsidiary of the Israel Ports Company; And now the privatization of the governmental port of Haifa has been completed.
However, the group faces quite a few challenges. Not only the increasing interest rate affects the deal, but also the cooling of the shipping industry due to the changes that took place in it during the Corona period and the changes in consumption that followed.
The competition for the containers
In addition, the port of Haifa, which is changing hands today, will compete for the container transportation industry with the port of the Chinese Gulf. The Gulf Port, let’s remember, started operating about a year ago, and in the last few months the trend indicates that it is approaching the lead in the field of containers in the region. Thus, in the first quarter of last year, the movement of containers in Israel totaled 787 thousand TEU (container measurement unit), of which 354 passed through the Haifa port, and only 51 passed through the Gulf port.
In the third quarter of this year, out of 799 thousand TEU, about 250 passed through the Haifa port, and 124 passed through the Gulf port – a third of the volume of movements.
The Ministry of Transportation has not yet published the data for the last quarter of the year, but in November the Gulf Port already surpassed the Haifa Port in the number of its movements (61 compared to 45 respectively). Although it is not necessarily a representative month, the trend is clear, when in December the Zim Company informed its customers of a move from Haifa Port to the Gulf Port, which unloads containers using innovative systems that include cranes operated from a control room.
Looking to the future, the maximum possible annual capacity of the Gulf port is about one million TEUs, which make up almost a third of the volume of movements in Israel that is increasing over the years. Sources in the port industry describe this challenge as positive – more prosperous brands that operate in the mall contribute to its overall success against competing malls. Thus, the Haifa area also competes with ports located in the Mediterranean Sea and providing an efficient and profitable service.
Another challenge that the winning group will face is the fact that the country has developed more port supply than demand in port movements, and in the coming years the market is expected to grow gradually.
To meet these challenges, the winning group will have to optimize the day-to-day service as well as the personnel situation. As part of the port reform, the state reached an agreement with the workers that included a retirement deal for first-generation workers, and the number of workers decreased from about 1,100 to about 800.
The group will face competition in its core business, which is the containers, in the form of streamlining, but it will not necessarily lead to a decrease in the number of employees, since it is possible that at the same time as streamlining in this area, the company will develop additional areas of activity.
As mentioned, the company will also be able to use the amount accumulated in the port coffers intended for upgrading infrastructure and a deeper dock that will enable the docking of huge ships also in the Haifa port and increase cargo activity (transferring cargo from one ship to another ship with a different destination), but this too, according to sources in the industry, will require an adjustment of expenses charter to make it profitable and so that it can be carried out at competitive prices relative to the alternatives in the Mediterranean and the competing Chinese port.
Another possible direction in which the two competing ports – the Chinese and the Israeli-Indian – can go is the development of the logistics sector in the ports.
Development of port activity
The winning group intends to significantly develop another port activity. So far, the Haifa Port has not considered the unloading of general cargo such as iron, cement, wood, etc. as a profitable field, but the changes in ownership and possible changes in wage and compensation agreements for employees will change the picture, and the winning group will go in that direction quite certainly.
In the near term, the group intends to build a grain handling silo, which, according to the TMA, will make it possible to evacuate the Dagon silos, which are responsible for about 70% of the total grain arriving in Israel. The alternative facility will increase the port’s activity in this area at the end of one of the docks, so that huge ships They will be able to unload it comfortably, as the Gadot company has a lot of experience in this field.
The move of the Port of Haifa to these areas will step on the toes of the nearby small and efficient private port of Israel Shipyards, which has so far benefited from the government port’s lack of involvement in these areas. The company intends not only to operate in the field of silos but also to increase activity in the field of cement, iron and cars.
The real estate development
The Dagon area, which will be vacated after the construction of the new silo, will allow the winner to begin the real estate development of the sea front in Haifa, which will include commercial, entertainment, catering buildings and a new passenger terminal that will also correspond with the growth of cruises in the Haifa port in recent years. Thus, the downtown in Haifa and the train station that reaches it will connect to the sea front.
In a presentation to investors, the Adani company explained that in the positive scenario the real estate development will allow it to repay the loans within six years, and if not, it will occur within 25 years, hence the high motivation in the development.
The future plan also includes the establishment of hotels, a duty free and passenger terminal as well as places for catering and entertainment, and the group intends to make it the new city center.
On the way to implementing the project, the group will have to deal with the Haifa municipality and try to reach agreements that the state was unable to achieve in the past, keeping in mind the local elections at the end of the year.
Blinkov: privatize Ashdod port as well
Ram Belinkov, Director General of the Ministry of Finance and Chairman of the Haifa Port Sale Committee, stated that “Adani-Gadot held a general meeting, and we gave them the share certificate, and as of about an hour ago, the company is completely private, and we no longer have any say in the operation of Haifa Port.
“Thus we completed the privatization, and the money went to the government’s and the company’s bank – almost NIS 4 billion: NIS 2.9 billion to the Treasury and about a billion NIS to the Haifa Port Company. This is after a strenuous, long and bumpy move. It would not have been possible to do this without the most dedicated help of The employees of the Ministry of Finance and, of course, the employees of the Haifa port and the board of directors.”
Belinkov referred to the Port of Ashdod and said: “We must bring about its privatization, since it is admittedly in limited competition, but a strong competitor is developing next to it. A port is no longer suitable to be a government company, it should be a private company.”
According to him, “The government companies that found themselves competing with private companies that were privatized, led by Bezeq, were the best in the end. Bezeq was a government company, and today it is the best communications company in Israel.
“The new ports deal mainly with containers, and our ports also deal with general cargo, bulk and cars, they have a larger area that gives them operational options. Despite all the difficulties in labor relations, they have inexhaustible knowledge, so I foresee a very good future for them.”
Karen Adani, CEO of APSEZ, said: “This is a very happy day both for us and for all Israelis, after we completed the purchase of Haifa Port. We now look forward to upgrading its operations as quickly as possible for the sake of improving service, making the appearance of ship traffic jams a distant memory and easing the cost of living for citizens. This is an exciting closing of the circle for us, about 100 years after the heroic battle in which the city of Haifa was saved by the Indian cavalry in the First World War.”
Ofer Linchevski, CEO of Gadot, said: “This is an exciting moment for all of us. Now we are facing forward to our entry into the port’s operations, to its rapid development and to the beginning of providing new services to the various branches of the economy and to growth already in the coming years.”