Gauging the Viability of a Public Bid for a Cargo Port

Services

Investment Research

Challenge

Our client, a leading international port operator, wanted to pursue a bid for the privatization of a Pacific coast cargo port. They had two principal concerns. Was the port privatization rigged whereby another firm was unofficially pre-selected, as can often happen in Latin American public bids? They also questioned some of the volume growth expectations built into the privatization pricing process.

Approach

Americas Market Intelligence (AMI) began by investigating the level of transparency of the bid. Through contacts in the Ministry of Transport and friends of the Minister in charge of the bid, we were able to determine that the bidding process did in fact promise to be transparent. If any prejudice existed, it could in fact favor our client because the government ideally wanted an experienced international port operator to win the bid. Next, we meticulously scrutinized the demand forecast assumptions of the bid and built our own demand model to challenge the assumptions.

Result

AMI’s demand forecast seriously challenged the overly optimistic numbers published by the Ministry of Transport. By comparison, we predicted that demand would grow at 1/3 the rate predicted by the public bid organizers. Our client decided not to pursue the bid and communicated to the Ministry their doubts about their demand forecasts.

A few months later, the global financial crisis began and the Ministry of Transport cancelled its privatization plans, and our client was thankful to not have committed themselves to what could have been an unprofitable investment.

Client Benefit

AMI’s analysis helped the client to understand the realistic projections of demand growth and avoided making an unprofitable investment.