Mumbai: New York-based private equity company the Blackstone Group Lp. and its affiliates have picked up 10.38% stake in Mumbai-based logistics company Allcargo Global Logistics Ltd (AGL), for Rs242 crore.
The private equity firm plans to buy more shares of the firm from the open market to increase its stake to 14.99%—the highest it can go up to without having to make an open offer to buy shares of the company from public shareholders—but has not specified any time frame for this.
Blackstone will pay Rs934 per share, almost 30% above Allcargo Global’s average share price—Rs725.96—over the last 15 days. Shares of Allcargo shot up 8.31% to close at Rs774 each on the Bombay Stock Exchange on Wednesday.
The deal has a built-in clause on a performance-linked bonus under which AGL will receive an additional Rs55 crore from Blackstone Group if the company registers an operating profit of Rs190 crore in calendar year 2008. The operating profit of the company last year was Rs140 crore. AGL will also be eligible for an additional Rs22 crore if it clocks Rs340 crore in operating profit by 2010.
This is Blackstone’s first deal in 2008 and its third deal in the infrastructure space in India. In 2007, the firm, whose Indian operations are headed by Akhil Gupta, invested $65 million in defence supply company MTAR Technologies Pvt. Ltd, and $150 million in Nagarjuna Construction Co. Ltd.
Private equity investors have been attracted to the infrastructure and logistics space since the middle of 2007. According to a recent report by Venture Intelligence, a venture capital and private equity research firm, investments in shipping and logistics accounted for 22% of the deals and 11% of the deal value in 2006-07.
With this deal, Blackstone has made six investments in India, excluding its planned investment in Ushodaya Enterprises Ltd. Although the finance ministry cleared the deal eventually, the delay of more than a year and the political opposition led Ushodaya to eventually call off the deal and instead strike one with JM Financial’s Nimesh Kampani.
Allcargo is a logistics service provider involved in so-called multimodal transport operations, and owns and operates container freight stations and handles specialized project cargo.
The company acquired ECU Line NV in 2006 and Hindustan Cargo Ltd (from Thomas Cook Ltd) in 2007 to reach out to international destinations and diversify into the air freight business.
The investment banking arm of Kotak Mahindra Capital Co. Ltd, CitiGroup and Collins Stewart Inga Pvt. Ltd acted as joint advisors to this transaction.
“The company was all set to raise capital of around Rs300-350 crore. The entry of Blackstone brings a lot of credibility to the company and Indian logistics space. The deal is structured in such a way that there will be a lot of pressure on the company to perform. However, the company’s business is growing at 8-10%,” said Krishnakant Thakur, an analyst with domestic brokerage Edelweiss Securities Ltd.
Audit and consulting firm KPMG International has pegged the size of the Indian logistics market size at Rs4 trillion.
As per the deal, Blackstone will purchase 1.1 million shares and 1.5 million warrants of AGL at Rs934 per unit. In the case of warrants, Blackstone will pay Rs194 per unit as advance, totalling around Rs28 crore. AGL will therefore receive Rs100 crore from the sale of shares immediately and Rs28 crore as a 20% advance towards warrants. The remaining Rs114 crore will be paid in 18 months.
After Blackstone executes its purchase option, the promoters’ stake will go down to 72% from 79.6%.
If Blackstone fails to buy 80% of the remaining warrants, it will forfeit the Rs28 crore.
Shashi Kiran Shetty, chairman and managing director of Allcargo Global, claimed the deal was unique because the investor was “paying a premium” over the current price of the stock, “reflecting the faith in management and the business model.”
Akhil Gupta, chairman and managing director of Blackstone Advisors India Pvt. Ltd, was not immediately available for comment but was quoted in a statement issued by AGL as saying that the group is very excited with this investment opportunity and is looking forward to working closely with the Allcargo team.
Shetty said he would use the proceeds to invest in setting up inland container depots, logistics parks, buying transport related equipment and other port projects.
“Allcargo has firmed up plans to enter the business of managing the ports. We are in talks with various international port operators for bidding Indian ports. We have also plans to establish warehouses in select destinations,” he said.
This year will mark Allcargo’s entry into the West Asian market, where it will set up logistics operations in Doha, Dubai and Oman.