Bangalore: Private equity and venture capital investors are readying funds in excess of $2 billion (about Rs8,500 crore) to invest in India’s maritime infrastructure and logistics, as the country strengthens cargo handling facilities to meet rising demand for exports and imports.
About 95% of India’s external trade by volume and 70% by value move by sea, but cargo handling and logistic costs are high because of deficient infrastructure and delays in shipments.
“The sector is underdeveloped in terms of setting up of port capacities and related support infrastructure,” said Vipin Agarwal, assistant vice-president at Kotak Private Equity, part of the Kotak Mahindra Group. “As a result, the sector will witness lot of expansion activities.”
Fund inflow: The investments planned by private equity funds are sizeable and should deliver a boost to the maritime sector. (Photo: Ashesh Shah/Mint)
The national maritime development programme, drafted by the shipping ministry, envisages an investment of Rs1 trillion to spruce up India’s maritime sector including ports, shipyards, marine logistics parks, inland container depots and related support services. Of this investment, 64% is expected to come from private firms.
The investments planned by private equity funds are sizeable and should deliver a boost to the sector, improving India’s competitive edge in maritime trade. In the past, private equity investors had only small funds targeted at the sector.
Eredene Capital Plc. is raising $300-500 million to plough into the sector, said Nirav Shah, associate at the UK-based fund that’s focusing on logistics, distribution warehouses and port services in India. Eredene has so far invested close to $100 million in India.
Axis Private Equity Ltd, a unit of Axis Bank Ltd, is raising $350 million overseas to invest in the sector, said Shreyans Jain, associate at Axis Private Equity. “Axis is evaluating projects in this sector for investment,” he added. Axis already has a $150 million infrastructure fund, of which about $60 million has been invested.
Samraj Group, a UK-based group of non-resident Indians, has lined up $500 million to invest in the sector, said its chairman and managing director Rajiv Samani.
HSH Nordbank AG, the world’s biggest ship financier, is in talks with public sector banks including State Bank of India, the country’s largest lender, to set up a fund of around $200 million to invest in maritime-related sectors, said a person familiar with the matter who didn’t wish to be named.
HSH Nordbank has received approval from the Reserve Bank of India, the central bank, to open a representative office in Mumbai.
Norway-based ship financier DnB NOR Bank ASA was also looking to open an office in India to tap growing opportunities in shipping, offshore and logistics, the firm’s executive vice-president, Hans Petter Aas, had told Mint during a visit to India earlier this year.
Firms such as Goldman Sachs (India) Securities Pvt. Ltd, Carlyle Group, Baring Private Equity and Macquarie Group have already invested in the sector and are evaluating more projects.
“The sector is in a sweet spot for investment. The opportunities that the maritime sector has to offer have not been exploited yet,” said Paurush Roy, a director at Samara Capital, a $263 million, India-focused private equity fund.
Samara Capital is looking at possibilities in the ancillary businesses that support maritime trade, such as warehouses and container freight stations.
“The sector is very well-poised to attract lot of investments,” said Akshaya Prasad, vice-president, infrastructure investment areas, at Goldman Sachs (India) Securities.
India spends more on logistics costs as a percentage of the gross domestic product, or GDP, compared with developed nations, as clogs in the supply chain delay exports and imports, adding to the overall transaction costs.
In India, logistics costs as a percentage of GDP add up to 13%. The comparative figure for the US is 8.7%, Japan 11% and Europe 12%.
“In terms of documentation and transaction costs, India is very expensive,” said Sudhir Rangnekar, managing director and group chief executive of Sical Logistics Ltd.
India spends $1,148 as handling costs for importing one cargo container and $820 for an export container. In comparison, Singapore spends $367 for handling an import container, while China spends $390 on an export container, according to a World Bank study.
“There is growing need for improving logistics in India,” said Shah of Eredene Capital, which trades on the Alternative Investment Market of the London Stock Exchange.