PE firms look for deals beyond ports, shipyards

PE firms look for deals beyond ports, shipyards
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First Published: Mon, Sep 08 2008. 10 50 PM IST

Bullish on sector: MD and co-head Asia of 3i Group Plc., Anil Ahuja. Madhu Kapparath/Mint
Bullish on sector: MD and co-head Asia of 3i Group Plc., Anil Ahuja. Madhu Kapparath/Mint
Updated: Mon, Sep 08 2008. 10 50 PM IST
Bangalore: Ports in India, a country with a coastline of around 7,600km, have attracted private equity, or PE, capital for some years.
Now, the number of such deals is increasing and PE firms are moving beyond ports and shipyards when it comes to investing in marine infrastructure.
Bullish on sector: MD and co-head Asia of 3i Group Plc., Anil Ahuja. Madhu Kapparath/Mint
With India’s cargo-handling capacity at ports expected to double to 1,500 million tonnes by 2011-12, PE experts say a network of strong ancillary businesses are required to promote trade and transportation activities as both ports and shipyards need accessibility and linkages to the main land.
“We need to view marine infrastructure in a holistic manner. It requires a complete ecosystem around itself,” says Aashish Kalra, co-founder and managing director, Trikona Capital Ltd, a real estate investment company. “We are not only interested in marine infrastructure but also the real estate around it.” Trikona has invested in Pipavav Shipyard Ltd, which is expected to be the largest shipyard in India and among the largest in Asia.
Related businesses include railroads, roads, cargo airlines, warehouses, dry docks, power, even residential developments and residential areas, among others. “Everything is interconnected,” says Vishal Sharma, managing director, Tuscan Ventures Pvt. Ltd, a logistics-focused investment firm.
So called quick-haul facilities, dry storage amenities and ample parking, all supported by streamlined services, lead to shorter turnaround times at ports and better utilization of the port infrastructure.
Given that such support is almost non-existent in Indian ports, some port managements will start their own ancillary services, predicts Anil Ahuja, managing director and co-head Asia, 3i Group Plc. 3i, which invested in Mundra Port and Special Economic Zone Ltd in 2005, continues to be bullish on the sector and is evaluating a few deals currently.
Indeed, there are companies such as Krishnapatnam Port Co. Ltd, or KPCL, seeking investment. KPCL is developing an all-weather deep draft port at Krishnapatnam in Nellore district of Andhra Pradesh at an investment of around Rs10,000 crore in three phases. The company recently said 3i may invest up to Rs1,000 crore for a stake between 15% and 26%. “We will deploy the PE funds for meeting the investments required in the second and third phases of the port project,” says Chinta Visweswar Rao, chairman of CVR group of companies, which KPCL is part of, adding two other PE firms have also shown interest but declining to name them.
Experts predict marine infrastructure related to oil rigs, niche and specialized ports, companies supporting design and maintenance of ships, as well as those associated with port construction and cargo handling will attract PE investment in future given their potential for rapid business growth.
Currently, there are less than 10 yards in the world that manufacture offshore rigs. Among Indian players, Bharati Shipyard Ltd is manufacturing an offshore rig for Great Offshore Ltd, slated for delivery in the summer of 2009. ABG Shipyard Ltd is in negotiation with Essar Shipping Ports and Logistics Ltd for a contract to manufacture two rigs. Once these are executed and foreign buyers are assured that Indian players can make sophisticated rigs, further orders will start flowing in, Sulabh Agrawal, an analyst with Mumbai-based research firm Angel Broking Ltd wrote in a report dated 22 August on India’s shipbuilding sector.
With more ports coming up, companies training professionals specifically for the sector will also attract investors’ attention. Mumbai-based Tuscan’s most recent investment is in Singapore-based Rasmussen and Simonsen International Pte Ltd, which provides global shipping and logistics industry focused training.
Tuscan invested an undisclosed sum for a 40% stake in the company. The potential: Global shipping and logistics industry will need to recruit and train at least half a million professionals in the next decade. “As the industry shifts its focus from manual, that is low cost, to technology, that is solutions, a well-trained workforce will emerge as the true competitive advantage,” says Sharma.
Not everyone in the PE community is bullish on the potential of marine infrastructure. 2i Capital India Pvt. Ltd, which co-invested in Pipavav, for instance, does not plan to strike more deals in the sector. “There are too many players now. Getting a good valuation was much easier earlier,” says Shailesh Vickram Singh, vice-president, investments, 2i Capital. Still, with a string of ports and shipyards expected to be built across India’s coastline under the $22 billion (Rs97,680 crore) Sagaramala Project, in a so-called public-private partnership model, opportunities will beckon PE players more than ever before.
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First Published: Mon, Sep 08 2008. 10 50 PM IST