JPMorgan (NYSE:JPM) May Land Spanish Port Business from ACS

An infrastructure fund of J.P. Morgan (NYSE:JPM) is reportedly close to a deal to acquire the port business from ACS subsidiary Dragados SPL, according to some sources close to the situation.

Problems over the port sector are evidently holding up the deal at this time. If they are resolved, the deal should go forward.

It does make you wonder what will happen to ACS subsidiary Dragados SPL, as ACS is in the process of negotiating sales on the ports, which before interest, tax, depreciation and amortisation, accounts for between ninety to ninety-five percent of the subsidiary’s profits.

The motivation in this for ACS is the large debt it holds, which is stood at about 9.3 billion euros as of September 30, but which has been whittled down some since then. Revenues from the sales will be used to continue paying down their debt.

With the Spanish economy floundering now with a lot of uncertainty as to its financial health, raising capital to for the ports has proven difficult for J.P. Morgan, and with ports considered one of the weaker links when an economy is struggling, it’ll be a challenge for J.P. Morgan to raise the funds, although it’s highly probable they will get something to work with, although the weak banking sector continues to be reluctant to lend the approximate 200 million euros J.P. Morgan is asking for.

The primary port J.P. Morgan would put the borrowed funds into would be the port of Valencia, which generated 114.3 million euros in 2008. The other ports involved in the deal include Las Palmas, Malaga, Bilbao, among others. None of them are near as productive as Valencia is.

Taking into the account the extreme weakness of the so-called recovery, a large number of ports to drop rates along with capacity to meet the slowing conditions. That means pressure on profits for the port industry until there is a real recovery and true economic growth which emerges.

With no signs of global trade increasing in any meaningful or sustainable way, it is a risk on the part of J.P. Morgan to secure the ports, but over the long term they could give a good return when worldwide trade resumes.

ACS has been trying to sell all the assets of Dragados SPL for about a year, but J.P. Morgan has been picking and choosing only certain assets of the company it’s interested in.