Mumbai: Logistics firm Gateway Distriparks Ltd is close to signing a deal with an international private equity firm to raise at least Rs300 crore, by selling a stake of up to 25% in its subsidiary Gateway Rail Freight Ltd, said two senior Gateway Distriparks executives.
“The company has shortlisted one private equity player among a dozen who had shown interest,” said one executive, who did not want to be identified. “We have signed a confidentiality agreement with that company and this deal should happen by September-end.”
He did not divulge the details of the deal or the name of the private equity investor.
The deal is likely to end a two-year search to rope in a private equity investor in the subsidiary. Gateway Distriparks had appointed Kotak Mahindra Capital Co. Ltd in 2007 to arrange funds.
“We had to drop the idea to raise funds through private equity as companies were not willing to invest in the backdrop of economic recession. Instead, we had taken a Rs210 crore long-term loan to fund our expansion plans,” the second executive said.
He said his company is arranging private equity by itself this time.
“Since we have given exclusivity to one private player, we are sure that (the deal) will happen by this month end,” he added.
Gateway Distriparks owns 95% in Gateway Rail, which runs container trains across the country and operates inland container depots (ICDs) at Kalamboli in Mumbai, Gurgaon and Ludhiana. ICDs, or dry ports, are places where containers are stored and cleared by customs. Gateway Distripark only moves containers in and out of ports.
Gateway Distriparks is an Indo-Singapore joint venture promoted, among others, by companies such as Windmill International Pte Ltd, Parameswara Holdings Ltd, Prism International Pvt. Ltd, Singapore-based KSP Logistics Ltd and Thakral Corp. Ltd and Thakral Investments Holdings (Mauritius) Ltd.
“At this point of time, we are not sure about how much we will dilute in Gateway Rail. It all depends upon the valuation we arrive at,” said one of the two company executives, adding that the company was looking to raise at least Rs300 crore. The funds will be used to build more ICDs and buy container trains. “The company has bought some land near Faridabad in Haryana. We are planning to build an ICD there. We will also buy six container trains as a part of expansion plan, post-stake sale,” he said.
An analyst with a Mumbai-based brokerage, who declined to be named because he is not authorised to speak to the media, said raising funds through a stake sale in a subsidiary is “overdue” as the company needs to raise cash for its expansion plans.
“Though container train operations are bleeding, the inland container depot business has registered some signs of recovery. The logic of raising funds is to strengthen its rail terminals across the country,” he said.
State-run Container Corp. of India Ltd is the only profit-making container train firm in the country since the sector was opened up to private players in early 2007.
Gateway Distriparks operates container freight stations at Dronagiri, near Jawaharlal Nehru Port in Navi Mumbai, New Manali in Chennai, Visakhapatnam and an ICD at Garhi Harsaru in Haryana. It also currently operates 15 container trains.
In a July report, Bhoomika Nair, an analyst with Mumbai-based brokerage IDFC-SSKI Securities Ltd wrote that Gateway Distriparks is expecting to limit its rake (container train) addition, improve utilization levels of existing trains and reduce the running of empty trains. Moreover, margins for the rail business are likely to improve because of the limited increase in overhead costs, the report said.
“Further, the addition of rakes each quarter was driving higher fixed costs in terms of interest and depreciation costs, which will stabilize at current levels. We believe as the management takes steps to improve the utilization levels and additional revenue from ICD’s accrues, the losses in the rail business will reduce significantly over the next few quarters. The management expects the rail business to turnaround and be profitable in FY10,” Nair wrote.
The shares of Gateway Distriparks rose 5.46% on the Bombay Stock Exchange on Monday to close at Rs115.85. The bellwether index Sensex closed 2.09% up at 16,016.32, its highest in at least 15 months.