- The Washington Times - Monday, February 17, 2003

SINGAPORE, Feb. 17 (UPI) — Over the last few days, Singapore port operator PSA Corp. announced several steps that amount to a restructuring ahead of a long-delayed public offering.

It will transfer its non-core assets back to its main shareholder and lay off employees. The moves should result in a leaner, meaner PSA operating in the face of intensive competition for its port business.

While analysts generally believe the round of layoffs should help the company lower its cost and increase its competitiveness, there are still some concerns about the challenges it faces and its overall attractiveness as an investment. Only two months ago, Moody's Investors Service downgraded its outlook on the company from stable to negative, citing concerns about its trading environment and pressure on its operating margins due to increasing competition.

In a research note, Barclays Capital noted, "The disappointing throughput performance of the home port in January compared with Hong Kong and the decline in volumes at its largest foreign port (only acquired last year), leave little hope of anyone being attracted to PSA even in stripped-down form."

On Friday, the government-owned PSA said it would transfer back to Temasek Holdings, the government investment arm, its airport handling, cruise terminal, exhibitions and cable car operations as it seek to narrow its focus on its core business of port development, management and operations. The companies involved are CIAS International, one of two licensed airport terminal service providers at Changi airport; PSA Exhibitions, which oversees trade shows and exhibitions; Singapore Cruise Center, a new company established to take over PSA's cruise businesses; and its 50-percent stake in Singapore Cable Car, which runs the cable car systems between Mount Faber and Sentosa island.

The businesses are transferred at their net tangible asset value prices for a total consideration of $104 million, and should be effective on March 31 pending regulatory approvals. Temasek is likely to sell off those transferred assets as they are not strategic.

"The transfer is part and parcel of PSA's ongoing transformation from a Singapore-based operator to the global port player we are today," Ng Chee Keong, PSA president and chief executive, said in a statement. "As we forge ahead in an increasingly competitive market, we will have to be extremely focused in terms of where we want to direct our resources and energies."

"This transfer will thus ensure that we continue to sharpen our focus on our core business and be well-positioned to compete more effectively. We believe that these transferred businesses would also be better placed to pursue opportunities for growth in the long run," Ng said.

On Monday, the company also confirmed that 800 workers out of a 6,000-member labor force would be laid off. This is the first time in 20 years PSA is laying off staff and over the weekend, government officials were in overdrive to explain the reasons behind the layoffs.

Deputy Prime Minister Lee Hsien said that although PSA was profitable, it had to keep itself lean and the layoffs were unavoidable.

"You cannot carry any surplus baggage and you have to run as trim a ship as possible," Lee said. "Particularly, at PSA, with competition, tariffs will have to come down and they have to make sure that their costs are kept to the lowest possible extent."

Prime Minister Goh Chok Tong noted that although PSA had cut its prices to stay competitive, it was unlikely to regain its old market share in the port business. Therefore, its management had no choice but to retrench some staff "to prevent PSA from going under water."

In the last two years, PSA has come under growing pressure from rival ports such as Malaysia's Tanjung Pelepas port. In 2000, Danish liner Maersk Sealand, PSA's biggest customer, moved its business to Tanjung Pelepas, citing cheaper rates there. Maersk was also reportedly offered a 30 percent equity stake in the port as part of the package. Last year, Evergreen Marine Corp., Taiwan's largest shipping line, also moved its business to the Malaysian port for the same reasons.

To stave off competition from regional ports, the company announced last June it would offer its customers a 50 percent cut in handling charges for empty containers and a 10 percent rebate on all bills at its cargo terminals. The government also indicated that it was open to the entry of new port operators and offering liners to run their own berths. Goh announced that the government would expand Singapore's port capacity and was prepared to open up the sector to more players.

"If shipping lines find it more profitable to run their own dedicated berths, instead of using the services of PSA or Jurong Port, we should allow them this option," Goh said at the time. "If other port operators think they can outrun PSA or Jurong Port by managing a third terminal in Singapore, we should hear them out," he added.

Last year, the port operator saw its total throughput of shipping handled grow 28 percent to 24.6 million 20-foot-equivalent units (TEUs), with growth of 8 percent at its local ports alone to 16.8 million TEUs, making Singapore the world's second-busiest port after Hong Kong.

Its overseas operations soared 115 percent to 7.8 million TEUs with contributions from its new Guangzhou Container Terminal in China, which started operations in July 2001, and Hesse Noord Natie in Belgium.

The local growth followed PSA's first-ever decline in volumes handled in 2001 when the volumes fell 8.9 percent to 15.52 million TEUs.

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