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SAO PAULO (Reuters) - Dubai Ports World Co and MSC Mediterranean Shipping Co SA are seizing on Brazil's three-year-long recession and rising debt levels among local port operators to bid for marine terminals in one of the world's top commodity exporters. But their plan will not come cheap.
Half of the 12 terminal and port sales negotiated in Brazil since January 2016 came at a premium to other similar deals in the region. Now people familiar with three of the six ongoing port deals in Brazil are expecting potential sellers to fetch premiums of 20 percent or more for their maritime terminal and port assets.
Ports have gained extra allure in the wake of government steps to privatize infrastructure in Latin America's largest economy, even if global maritime activity remains tepid. Brazil has about 37 state-owned ports and 180 privately-held marine terminals.
Foreign players perceive Brazilian port operators as less prone to facing roadblocks than other infrastructure segments, said Eleven Financial Research chief strategist Adeodato Volpi Netto.
A record grain crop and a gradual economic recovery should keep ports and terminals busy, potentially accelerating M&A activity before valuations climb further. The value of port acquisitions in the Americas averaged 8.9 times expected earnings before interest, tax, depreciation and amortization (EBITDA) in the first quarter, data compiled by Thomson Reuters showed.
"Timing seems right for these deals as interest from global players in Brazil's port industry keeps growing," Volpi said.
MSC is offering partner TPI Triunfo Participações & Investimentos SA (TPIS3.SA) the equivalent of 12 times expected EBITDA for a 50-percent stake in the PortoNave terminal and a nearby cold storage unit, three people familiar with the talks said.
After ending talks to buy Advent International Corp's 50 percent in TCP Terminal de Contêineres de Paranagua SA due to price issues, DPWorld is close to buying out partner Odebrecht SA's 66-percent stake in the Embraport terminal at similar multiples, the people said. The deal has taken longer to close because of Odebrecht's involvement in a Brazil graft scandal, they said.
Valuations remain resilient even for mature value plays like TCP. According to the people, China Merchants Group Ltd [CNMGP.UL] would be willing to pay slightly more than 13 times expected 2017 EBITDA for Advent's stake in TCP, valuing it at 3.5 billion reais ($1.1 billion), the people said.
MSC, Advent, Triunfo, Odebrecht, China Merchants, DPWorld and Odebrecht all had no immediate comment.
The sources spoke under the condition of anonymity, citing confidentiality accords surrounding the deals.
Porto Itapoá and liquid bulk terminal AGEO Terminais e Armazéns Gerais SA are among potential targets, the people said. Brazil's D'Avila family is also considering selling Terminal Portuario de Itajai SA, or Teporti, one person said.
AGEO's owner Cynara Ruiz hired Banco Santander Brasil SA (SANB11.SA) and Banco Bradesco SA (BBDC4.SA) to look for buyers, two people said. Battistella Administração & Participações SA (BTTL4.SA) and BRZ Investimentos SA-led funds are on the way to hire financial advisers to sell Itapoá, one person said.
AGEO, Itapoá, Teporti and the banks did not have any comment.
Brazil's port industry is undergoing deep changes, with returns seen declining as shipping firms gain in scale through M&A. Maersk Line [APMOLM.UL], the world's No. 1 shipping company, last December announced plans to buy smaller rival Hamburg Sud, which may put pressure on rates, the sources said.
Competition has especially increased in the Santos port, Latin America's largest, hampering profits for container players. New terminals began to operate in the Santos port in 2014, when the economy slumped into recession - leading to a supply glut that only worsened as demand declined.
Reuters reported on Monday that the Brazilian government has changed plans and is considering selling rights to operate the port of Vitoria as part of the ongoing infrastructure privatization plan.
Editing by Andrew Hay, G Crosse