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Business News/ Companies / Essar to strengthen ports, logistics business
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Essar to strengthen ports, logistics business

Essar to strengthen ports, logistics business

Restructuring plan: Jawaharlal Nehru Port, Navi Mumbai. Essar Shipping will bid for container terminal projects at JNPT and Chennai Port to become an integrated logistics company. (Photograph: Ashesh Premium

Restructuring plan: Jawaharlal Nehru Port, Navi Mumbai. Essar Shipping will bid for container terminal projects at JNPT and Chennai Port to become an integrated logistics company. (Photograph: Ashesh

Mumbai: Rocked by volatility in the global shipping industry, Essar Shipping Ports and Logistics Ltd (ESPLL), the largest shipping firm in the country, has decided to spread its risks by reinforcing its operations in ports, logistics and oilfields.

Restructuring plan: Jawaharlal Nehru Port, Navi Mumbai. Essar Shipping will bid for container terminal projects at JNPT and Chennai Port to become an integrated logistics company. (Photograph: Ashesh Shah / Mint)

It is also bidding for a coal and iron ore berth at Mormugao Port in Goa, a general cargo berth at Vishakhapatnam in Andhra Pradesh, and two coal berths at Paradip in Orissa.

“It is a conscious decision to transform ourselves into an integrated logistics company from a pure shipping company," said chief financial officer V. Ashok. “The ports business is going to be the main focus at ESPLL, but we will also be looking at other logistics solutions, including container freight stations, rail movement and road transportation."

Expansion in shipping has become difficult with asset prices rising, said Vikram Suryamshi, analyst with Karvy Stock Broking Ltd. Besides, ESPLL’s complete logistics services basket augurs well with Essar group’s businesses, he added.

“There is also a huge mismatch in demand and supply in the oilfield services and ports and terminals, which Essar Shipping is cashing in on," Suryamshi said.

In addition to port terminals at Vadinar and Hazira, both in Gujarat, ESPLL plans to build a port at Salaya in the state at an estimated cost of Rs800 crore.

The Salaya terminal is expected to start operations by the third quarter of 2010, with an initial cargo handling capacity of 20mt. ESPLL is awaiting environmental clearance for the port. “We are also bidding for container terminal projects at Chennai Port Trust and Jawaharlal Nehru Port Trust," Ashok said.

The company plans to offer port services to third parties by next year, although its terminals were meant for captive use. ESPLL is also considering building ports overseas where the Essar group is present, such as in Brazil and Vietnam.

The company was a dedicated shipping firm until 2005, but decided to sell some of its ships and become a complete logistics firm. The downturn in the sector has now forced it to accelerate its restructuring plans.

“We found it opportunistic at that point in time to sell those assets (ships)...we have redeployed those funds in our terminals, ports, logistics and oilfield businesses, which are quite remunerative and accretive to the shareholders," Sanjay Mehta, chief executive director and managing director of ESPLL, told analysts during an earnings conference on 29 July.

The shipping industry, facing overbooked ship-building yards, rising ship purchases and charter costs, is expecting a correction in ship freight rates. The Baltic Dry Index—the benchmark for shipping—has fallen sharply the past three months, signalling a slowdown in transportation of dry cargo, according to analysts tracking shipping stocks.

The rate of ships carrying liquid cargo is also expected to soften because of the slowdown in the US, Europe, China and India.

ESPLL has earmarked $2.6 billion (about Rs11,339 crore) as capital expenditure for the next three years, of which $600 million would be raised through equity and the remaining through debt. It will spend nearly $1 billion for expanding its port and terminal business and another $1.5 billion for its ships and rigs.

“We will certainly look at opportunities in the shipping business. We have already placed orders for 12 new ships and signed long-term cargo carriage contracts for two dry-bulk carriers," Ashok said.

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Published: 19 Aug 2008, 11:48 PM IST
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