Larsen & Toubro to become choosy about port investments

Larsen & Toubro to become choosy about port investments
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First Published: Thu, Jul 16 2009. 01 24 AM IST
Updated: Thu, Jul 16 2009. 01 24 AM IST
Bangalore: India’s biggest engineering and construction firm Larsen and Toubro Ltd (L&T) will be selective in developing port projects in future after investing close to Rs1,100 crore as equity in this business over the past decade.
“From now on, we will only pursue such port projects where there is visibility in cargo traffic, that are financially viable and can be executed quickly,” said L&T executive vice-president for developmental projects K. Venkatesh. “We will take investment calls appropriately based on these three factors; otherwise we will not invest.”
L&T, which has been investing in port projects through its subsidiary L&T Infrastructure Development Projects Ltd, in which it holds a 78% stake, recently pulled out of the auction process for developing coal terminals at Paradip and Mormugao ports without submitting price quotations. The firm had been shortlisted for both the projects. L&T is changing its port investment strategy after facing procedural delays on projects including delays in the transfer of land. For instance, in 2007, L&T had won the mandate from Gujarat government to develop a new port at Suthrapada in the state.
However, two years later, the state is yet to allocate land to the firm for developing the port.
“Without land, you cannot develop a port. That experience taught us a lesson,” Venkatesh said. “We are not in the game of acquiring assets and then delaying project execution for reasons beyond our control,” Venkatesh, who is also the chief executive officer of L&T Infrastructure Development Projects, said.
L&T Infrastructure Development Projects has a 50% stake in a joint venture (JV) with Tata Steel Ltd that is developing a new bulk cargo handling port at Dhamra in Orissa.
It also owns a 26% stake in a special purpose company formed to develop and operate a 12 million tonnes (mt) a year capacity iron ore terminal at Ennore port in Tamil Nadu. It holds a 11% stake in a 3-mt-a-year liquid bulk cargo terminal under construction at the same port.
The firm’s port investment also includes a 22% stake in International Seaports (Haldia) Pvt Ltd, a special purpose company set up to develop and operate a dry bulk cargo handling berth at Haldia dock of Kolkata port.
Venkatesh said that L&T is also not averse to divesting stakes in port projects that does not fit into its changed strategy. “Where we see future potential is limited and someone will give value for our stake, we will exit.”
In line with this strategy, L&T has recently divested its 39% stake in Kakinada Seaports Ltd, a joint venture company formed to develop and operate Kakinada port in Andhra Pradesh. “We sold our stake to the existing JV partners. We got the targeted internal rate of return on the investment from the stake sale,” Venkatesh said, without disclosing the value for which the stake was sold.
L&T is currently focused on developing the Rs3,300 crore mega shipyard-cum-port complex at Kattupalli in Tamil Nadu on the country’s eastern coast. The shipbuilding facility, touted as the country’s biggest, received the key environmental clearance from the Union government last fortnight and the speed of execution is gathering pace, he said.
The Tamil Nadu government has already allocated land to L&T for developing the project and the firm is in the process of raising debt worth Rs2,500 crore for construction, he added.
The cargo handling capacity at India’s ports (both Union government-owned 12 ports and the ports owned by the state governments but given to private firms for development and operations) have to be doubled to 1,590mt a year by 2012 from about 757mt now to meet demand.
This requires an investment of about Rs90,000 crore, a bulk of which is expected to come from the private sector, according to the Union shipping ministry.
p.manoj@livemint.com
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First Published: Thu, Jul 16 2009. 01 24 AM IST