Bangalore: Adani Ports and Special Economic Zone Ltd (APSEZ) has agreed to buy Dhamra port in Orissa from a consortium comprising Larsen and Toubro Ltd (L&T) and Tata Steel Ltd for about Rs.5,000 crore, three people familiar with the development said.
But the deal will hinge on the existing promoters getting environment clearance for a second phase of expansion of the port, these people said, all on condition of anonymity because the agreement hasn’t been officially announced yet.
The deal, if it goes through, will be the biggest acquisition yet in the Indian port sector.
“The deal has happened sometime in February/March. The caveat is that L&T and Tata Steel will have to get environment clearance for the phase two expansion of the port,” said a Mumbai-based port consultant who works closely with Adani Ports. “Environment clearance for the first phase of the port itself was a long-drawn affair.”
Adani Ports, L&T and Tata Steel haven’t officially announced the deal yet.
“Given the sensitivities involved, APSEZ has preferred L&T and Tata Steel get the green nod for the port’s expansion rather than take this task upon itself. If the environment clearance comes, the deal will go through; otherwise, it may even collapse,” the port consultant said.
“Nobody will pay $1 billion for a port with just two berths having a capacity to load 25 million tonnes (mt) of cargo a year,” a second person who works closely with L&T said.
The Rs.3,200-crore first phase of Dhamra port, with a capacity to load 25mt of cargo, started commercial operations in May 2011 from two fully mechanized berths capable of handling coking coal, steam/thermal coal, limestone and iron ore.
Adani Ports has already started putting its operations team at Dhamra port located in Orissa’s Bhadrak district. Vettath Raghunandan, who was heading marketing and operations at Adani Ports, is now the chief operating officer of Dhamra port, according to the port consultant mentioned above. Dhamra port did not have a chief operating officer until now.
Adani Group downplayed this development.
“It is a part of the due diligence exercise which is currently going on,” an executive at Adani Group said on condition of anonymity.
“Some kind of an agreement/understanding has been put in place pending environment clearance for the port’s expansion plans. Eventually, the Adani Group plan to acquire and run Dhamra port,” a second Adani Group executive said. He too spoke on condition of anonymity.
A spokesman for Adani Group said the company was continuously evaluating opportunities to grow its port business within the country, but declined to elaborate further.
Dhamra Port Co. Ltd (DPCL), the entity that runs Dhamra port, is an equal joint venture between L&T and Tata Steel.
Santosh Kumar Mohapatra, chief executive of DPCL, did not return calls made to his mobile phone seeking comment.
DPCL was awarded the rights by the Orissa government in 2004 to develop and operate a port at Dhamra for 30 years. The port contract can be extended for two additional periods of 10 years each.
Being a port outside the control of the Union government, Dhamra is free to set its own rates. In comparison, rates at Union government-controlled ports are set by the Tariff Authority for Major Ports.
Located between Union government-controlled Haldia and Paradip ports, Dhamra is one of the deepest ports on India’s eastern coast and is capable of allowing super cape-size vessels to dock. These are the biggest of dry bulk ships and have a capacity to load as much as 180,000 tonnes of cargo.
DPCL has applied for environment clearance for the second phase of the Dhamra port that involves constructing 11 more berths to handle an additional 71.3mt of cargo and one million standard containers a year. The expansion is estimated to cost about Rs.10,000 crore. The application is being processed by the Union ministry of environment and forests.
When fully operational, Dhamra will have 13 berths capable of handling about 100mt a year of dry bulk, liquid bulk, break bulk, containerized and other general cargo.
“It’s a valuation game,” the first Adani Group executive mentioned earlier said. “You pay for an asset not only for its current strength but also for its potential.”
“If somebody wants to sell a four-storey house which has statutory approvals for only two floors, then the buyer will pay for only two floors. But if the seller wants to get value for all the four floors, then he will have to get permission for the other two floors and then sell the entire house,” he said.
The deal, if and when it goes through, will help Mumbai-listed Adani Ports, already India’s biggest private port operator, ramp up its port handling capacity to more than 200mt by 2020.
Adani Ports is 77.5% owned by Adani Enterprises Ltd, the flagship business of billionaire Gautam Adani’s Ahmedabad-based Adani Group.
It currently has port-operating assets that can load about 115mt of cargo and most of these are located on India’s western coast, a big chunk of it in Gujarat, the home-state of Gautam Adani. APSEZ runs ports at Mundra, Dahej and Hazira—all in Gujarat and outside the control of the Union government.
The firm is also developing facilities at Union government-controlled ports located at Mormugao, Vizag and Kandla. APSEZ has for long been looking for a port on India’s eastern seaboard to replicate its success story at Mundra, a Chennai-based port consultant said. “Dhamra is a perfect fit for APSEZ,” he said on condition of anonymity. Mundra, now India’s biggest private port, handled 82.13mt of cargo in 2012-13.
In early May, the Union government granted security clearance to APSEZ, thereby allowing the firm to participate in port auctions, removing a restriction that was placed on it in November 2010.