Bangalore: Global container port operator DP World Ltd, which runs five terminals along the vast Indian coastline, is seeking to restructure its business by channelizing earlier investments in these facilities directly into the country. The investments were earlier routed through the tax haven of Mauritius.
DP World is working towards Indianizing its investments into terminal assets here that were routed through Mauritius, at least two people familiar with the plan said.
DP World inherited three of the five Indian terminal assets as part of its global takeover of Peninsular and Oriental Steam Navigation Co. Ltd (P&O Ports) in 2005. The three terminals, located at Jawaharlal Nehru (JN) Port near Mumbai, and Chennai and Mundra ports, started operations about 10-12 years ago.
“In those days, routing investments through Mauritius was fashionable. It is no longer so. Moreover, the strategy adopted by several global firms of routing investments into India through Mauritius has attracted criticism recently,” said an executive at one of the banks involved in the restructuring exercise, one of the two people mentioned earlier. He did not want his or his firm’s name to be identified.
DP World, majority owned by the Dubai government, will directly route the investments already made into India rather than through Mauritius, the executive said. The Dubai-based firm is the world’s fourth biggest container port operator. DP World has so far invested more than $1 billion into India’s ports.
The plan is already taking shape. India’s foreign investment promotion board (FIPB), the agency that vets foreign investments into India, discussed a proposal on 21 December submitted by DP World to invest some $200 million in a new container loading facility, the firm’s second at the Union government-controlled JN port, the bank executive said. JN port is India’s busiest container gateway. The DP World proposal was on the agenda at Friday’s FIPB meeting, according to the board’s website.
DP World won the new facility at JN port through a public auction in November which will be developed through Hindustan Ports Pvt. Ltd, a wholly owned special purpose vehicle (SPV) set up by the firm.
DP World’s five existing terminal assets in JN port, and Chennai, Cochin, Visakhapatnam (or Vizag) and Mundra ports are run by separate SPVs. The facilities at JN port, Chennai and Mundra are fully owned by DP World, while the firm has a 26% stake in the Vizag terminal and 80% in the Cochin facility, which is India’s first and only international container transshipment terminal.
A container transshipment terminal such as the one developed at Vallarpadam in Cochin port acts like a hub into which smaller feeder vessels bring cargo, which then gets loaded onto larger ships. Larger vessels bring about economies of scale and lower the cost of operations for shipping lines, which then translates into lower freight rates for exporters and importers.
Hindustan Ports, the SPV set up for the new terminal at JN port, may later be converted into a holding firm for DP World’s Indian assets, said a port industry executive, the second person briefed on the matter.
“The setting up of a holding company for its Indian assets is also beneficial as it may enable public participation at a later stage and open up new sources of funding in the port industry,” the bank executive said.
The five operating terminals of DP World handled a combined 3.5 million standard containers in 2011-12, according to the Indian Ports Association, an industry body.
This is about 36% of India’s total container volumes of 9.8 million standard containers in 2011-12.
DP World’s Indian terminals portfolio comes under its Asia Pacific and subcontinent region which contributed about 20% to global volumes, according to the company’s third quarter financial results for 2012 (calendar year).
DP World said it has applied to FIPB for necessary approvals for the new terminal at JN port and was awaiting the outcome. It declined to comment further, stating that it was too premature to do so.
“Being one of the strongest emerging economies in the world with a burgeoning middle class population, India offers immense potential for growth in the maritime sector,” Mohammed Sharaf, group chief executive officer, DP World, said on 6 November in Mumbai at a function held to mark the new contract at JN port. In 2011, DP World handled nearly 55 million standard containers across its portfolio of 60 terminals from the Americas to Asia.