Port of Darwin’s struggling Chinese leaseholder may welcome an Australian buy-out
- Written by Colin Hawes, Associate professor of law, University of Technology Sydney
Far from causing trade frictions, an Australian buyout of the Port of Darwin lease may provide a lifeline for its struggling Chinese parent company Landbridge Group.
Both Labor and the Coalition have proposed[1] such a buyout based on national security grounds.
But neither party has placed a dollar amount on a potential buyout, preferring to seek out private investors first. Any enforced acquisition would need to provide fair market value[2] compensation to Landbridge.
The previous Northern Territory government leased the port to Landbridge for 99 years in 2015. The A$506 million contract was supported by the then Turnbull government.
Finding a buyer
This could put Australian taxpayers on the hook for hundreds of millions of dollars. Private investors might baulk at taking on a port lease that has consistently lost money[3] for many years.
It is not clear[4] why the national security situation has changed. The latest government inquiry[5] found there were no security risks requiring Landbridge to divest their lease.
The more pressing risk threatening the port is a financial one.
Troubled times
If Landbridge Group, which holds the lease through its Australian subsidiary, declares insolvency, it will no longer be able to sustain the port’s operations. And the terminal could not support itself.
Several hundred employees would lose their jobs, and serious disruptions to trade and cruise ship[6] tourism would follow.
The Australian media reported[8] last November that the Port of Darwin racked up losses of $34 million in the 2023–24 financial year. Yet this figure is overshadowed by the financial liabilities Landbridge has in China.
Where the problems started
The problems started with Landbridge Group’s ambitious expansion between 2014 and 2017.
In that time it shelled out almost $5 billion on international and Chinese assets. Purchases included Australian gas producer WestSide Corporation[9] Ltd, ($180 million in 2014); the Port of Darwin[10] lease ($506 million in 2015); and another port in Panama ($1.2 billion in 2016). Landbridge reportedly planned[11] to plough a further $1.5 billion into that port.
In China, the Landbridge Group also signed a partnership[12] deal with Beijing Gas Co in 2019 to construct a huge liquefied natural gas (LNG) terminal at its main port site in Rizhao City, Shandong Province. The planned co-investment was worth $1.4 billion[13].
Rushing to invest
This was a heady time for Chinese private firms to invest overseas[14]. Their often charismatic founders took advantage of the central government’s devolution of approval powers to the provinces and dressed up their pet investment projects as Belt and Road initiatives[15].
Much of this breakneck expansion was funded by high-interest bonds issued on the Chinese commercial interbank debt markets or so-called shadow banking[16].
Most private Chinese firms did not[17] have easy access to the generous bank loans available to state-owned enterprises.
Landbridge, a private firm[18] controlled by Shandong entrepreneur Ye Cheng and his sister Ye Fang, was no exception. They borrowed heavily[19] to fund their acquisitions.
Mounting debt
Unfortunately, Landbridge’s income from its Chinese and international operations has not kept pace with its debt obligations. As early as 2017, the group was already struggling[20] to pay debts.
By 2021, Landbridge had been sued[22] by at least 14 major financial or trade creditors. Outstanding judgment debts[23] were issued by the Shanghai People’s Court amounting to about $600 million.
Since then, all of the group’s main assets have been frozen[24] in lieu of payment. Unpaid debts and interest amounting to more than $1 billion have been passed on[25] to state asset management companies[26] to collect or sell off at knockdown prices, an indication the group is effectively insolvent.
Time to restructure
In early 2025, a restructuring committee was formed[27] by the local government in Rizhao City, where Landbridge is headquartered. Its job is to find a way to keep the company’s Rizhao Port operating and avoid losing thousands of local jobs.
As recently as 2021, Ye Cheng[28] was still ranked[29] among the top 300 richest entrepreneurs in China, with an estimated net worth of more than $3 billion.
He is currently on the hook for his company’s debts after mortgaging all his business assets and giving personal guarantees[30] to major creditors. He has also been fined[31] by China’s corporate regulator for failing to lodge any annual financial reports for Landbridge Group since 2021.
Landbridge’s plans to develop its Panama port were cut short and its lease there was terminated[32] in 2021 due to financial shortfalls.
Ye’s next move?
Ye Cheng may be unwilling to sell off his remaining overseas assets as this would be an admission of defeat. Yet an enforced buyout of the Darwin Port lease arranged by Australia may provide his businesses with a temporary financial lifeline in China.
It would also absolve Landbridge of its previously announced commitments to invest[33] about $35 million in expanding Darwin Port’s infrastructure.
Far from causing trade frictions between Australia and China, such an enforced buyout – or more accurately, a bail-out – should be privately welcomed by both Landbridge and the Chinese government.
References
- ^ proposed (www.abc.net.au)
- ^ market value (www.austlii.edu.au)
- ^ lost money (www.abc.net.au)
- ^ not clear (theconversation.com)
- ^ inquiry (www.pmc.gov.au)
- ^ trade and cruise ship (darwinport.com.au)
- ^ Claudine Van Massenhove/Shutterstock (www.shutterstock.com)
- ^ reported (www.abc.net.au)
- ^ WestSide Corporation (www.marketscreener.com)
- ^ Port of Darwin (www.abc.net.au)
- ^ planned (www.chinadaily.com.cn)
- ^ partnership (finance.sina.cn)
- ^ $1.4 billion (finance.sina.cn)
- ^ invest overseas (www.uts.edu.au)
- ^ Belt and Road initiatives (www.cfr.org)
- ^ shadow banking (www.researchgate.net)
- ^ did not (www.researchgate.net)
- ^ private firm (www.uts.edu.au)
- ^ borrowed heavily (www.afr.com)
- ^ struggling (www.afr.com)
- ^ lovemydesigns/Shutterstock (www.shutterstock.com)
- ^ sued (finance.sina.cn)
- ^ judgment debts (file.finance.sina.com.cn)
- ^ frozen (m.cfbond.com)
- ^ passed on (www.famc.citic)
- ^ companies (www.gwamcc.com)
- ^ formed (www.shclearing.com.cn)
- ^ Ye Cheng (www.afr.com)
- ^ ranked (m.cfbond.com)
- ^ personal guarantees (www.famc.citic)
- ^ fined (www.csrc.gov.cn)
- ^ terminated (www.afr.com)
- ^ invest (www.afr.com)
Authors: Colin Hawes, Associate professor of law, University of Technology Sydney
