Adani Ports and Special Economic Zone Ltd (APSEZ), India’s largest port developer and operator, will acquire the Kattupalli Port in Tamil Nadu from L&T Shipbuilding Ltd (LTSB), a unit of Larsen and Toubro Ltd (L&T). The company did not disclose the financial details of the transaction.

The deal will help Adani to further strengthen its position in the ports business, experts said. The deal size is expected to be about 2,000-3,000 crore, according to a person close to the development, declining to be named.

Adani Ports said in a stock exchange filing that its unit, Adani Kattupalli Port Pvt. Ltd, (AKPPL) has entered into an in-principle agreement for the strategic acquisition.

The transaction is subject to necessary approvals from the government of Tamil Nadu and the central government, and the port is being demerged from LTSB, it said. Currently, L&T operates both the port and a shipyard under LTSB.

Getting the regulatory permits for the transfer of port licence by the Tamil Nadu government will be a tricky issue, said Ramesh Singhal, chief executive, i-Maritime Consultancy that tracks the port and shipping sector.

L&T holds a 97% equity stake in LTSB with Tamil Nadu Industrial Development Corp., a Tamil Nadu government undertaking, holding the rest.

While awaiting the necessary approvals, APSEZ, through its subsidiary AKPPL, has entered into an arrangement to take over the operations of the port.

The total investment in the project, which includes shipyard and port operations, would be about 4,000 crore, according to two industry executives close to the development. Kattupalli is a deep-water, all weather port with an international container terminal located 35km from Chennai in Tamil Nadu and well-connected to the hinterland. The port started commercial operations in January 2013 and has two berths with a total quay length of about 710 metres. The berths are equipped with six quay cranes and are designed to handle container, dry bulk and break-bulk cargo. Currently, the port has a cargo handling capacity of 1.2 million twenty-foot equivalent units, or TEUs, per annum. Environmental approval for further expansion is already in place.

“There is a plan to double this capacity post acquisition. Also on cards is the plan to handle dry cargo, including coal and fertilizer," said one of the two industry officials cited earlier.

Gautam Adani, chairman of Adani Group, said Kattupalli port is a strategic complement to its Ennore container terminal, which is getting commissioned next year. The Kattupalli port is located adjacent to and north of Ennore port, where APSEZ is developing the Ennore container terminal. Both ports are expected to together reduce congestion in the region and aid the growth of Tamil Nadu and the surrounding regions.

In May 2014, L&T group company L&T Infrastructure Development Projects Ltd and Tata Steel Ltd sold their stakes in Dhamra port in Odisha to APSEZ.

In August, L&T scrapped a plan to develop a new port in Kacchigadh, near the temple town of Dwarka in Gujarat, owing to environmental reasons.

A spokesperson for L&T declined to comment on whether the company will exit the ports business.

L&T had also planned to set up a 2,000 megawatts (MW) coal-based power project and was planning to use the multi-purpose port for shipping the coal. However, the project was found to be unviable from a financial point of view.

“It is an internal decision of L&T to exit the port business as a developer since running and operating a port is not its core competency. They might still continue to build ports," said a Mumbai-based expert who has been closely working with L&T’s port business.

L&T was also looking to develop a greenfield port in Odisha in 2011, but it has so far not identified any location.

“L&T is exiting port projects where it is a developer and is not pursuing any new projects as a developer. All this gives a sense that they want to exit the sector," said Anand Sharma, director of Mumbai-based Mantrana Maritime Advisory Pvt. Ltd, a consulting firm. The engineering and construction firm has expertise in construction, design and engineering, so it can make more profit by building a port and then selling it off, he added.

“It did so in the case of Dhamra. Even in the case of Kattupalli, it has sound expertise in shipyards and is betting big on defence projects," Sharma said. “Attracting cargo or developing an ecosystem for a port is not their core business so it makes sense to exit if they can get a good price."

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