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Bengaluru: Billionaire Gautam Adani, looking to expand his ports empire, may need all the political clout he can muster for his aggressive bid to gain control of a string of ports located across India’s eastern and western coastlines.

In June, Adani Ports and Special Economic Zone Ltd (APSEZ), India’s largest port operating firm, won a public auction to build a port at Vizhinjam in southern Kerala. Adani was the sole bidder for the 7,525 crore multi-cargo port. Soon after, news reports emerged that Adani, 53, was in talks to buy two more ports: Gangavaram in Andhra Pradesh and Kattupalli in Tamil Nadu. If Adani succeeds in snapping up these two ports, APSEZ would control a bigger stretch of India’s coastline stretching 7,517km on the western and eastern coasts.

For the record, APSEZ, Gangavaram Port Ltd and L&T Shipbuilding Ltd (which operates the Kattupalli port) have denied these reports, terming them market speculation.

However, several people familiar with the talks confirmed them, adding something was on the table; yet, whether a deal goes through will depend on how well Adani can manage the complexities involved in these two acquisition opportunities. This is where Adani’s risk-taking abilities and political clout would come into play.

Adani’s rivals are the dozen ports owned by the centre that were monopolies till the mid-1990s until private groups were allowed to run ports. But if Adani does snap up these two ports, the trend will reverse.

“From a situation of public monopoly, India is moving towards a private monopoly in ports. Very soon, we will have a situation where there will be Adani ports and other Indian ports in place of major ports (those owned by the central government) and non-major ports (those owned by the state governments but given to private firms for development and operations)," said a Chennai-based port industry executive who declined to be named.

The stakes, hence, are high.

Adani is trying to scale up a business that is doing well for the group by building new ports, acquisitions, public-private partnership (PPP) projects in Union government-owned ports and expanding ports he already runs. This will feed Adani’s plan to ramp up capacity significantly over the next couple of years.

Across Gujarat, Goa, Andhra Pradesh and Odisha, APSEZ currently runs eight ports or terminals with capacity to handle a combined 338.5 million tonnes (mt) of cargo. The capacity expansion planned at the existing facilities at Mundra, Tuna, Dahej, Hazira, Mormugao, Dhamra, Visakhapatnam and Ennore will add a further 240 mt, taking the total to 578.5 mt.

In 2014-15, APSEZ loaded a combined 144.25 mt, accounting for about 15% of the 975.73 mt of cargo handled at Indian ports.

“APSEZ is always interested in buying quality port assets where it can have management control, so that the company can run the show whichever way it feels best, without any interference from others. That has been the corporate philosophy of APSEZ," said an Adani Group official who didn’t want to be named because of company policy on speaking to the media.

The Adani official’s remark on “management control" makes sense when seen against the shareholding pattern of the Gangavaram port.

In Gangavaram, India’s deepest port with 21 metre draft, D.V.S. Raju and his family hold a 58.11% stake, while private equity firm Warburg Pincus LLC holds 31.5%, which it acquired for 150 crore in 2009. The rest is owned by the government of Andhra Pradesh.

This means Warburg’s minority stake alone will not satisfy Adani’s appetite. That leaves the majority owner: Raju.

But Raju, a co-founder of Satyam Computer Services Ltd (now acquired by Tech Mahindra Ltd) and also founder-chairman of Hyderabad-based IT services firm VisualSoft Technologies Ltd, is not interested in selling his stake yet.

“Raju is a very aggressive businessman," says the managing director of a European maritime consulting firm that had worked with Gangavaram port. When Larsen & Toubro Ltd missed its construction deadlines for the first phase of the port, Raju encashed the cheque given by the company against such a scenario. “Raju is the only person who had dared to encash the bank guarantee…. Nobody has done that ever—before or after," he said, asking not to be named because he is not authorized to speak to reporters.

One of India’s biggest coal traders, Adani’s interest in Gangavaram has also been stoked by the fact that he is one of the biggest customers of the port. “By now, Adani knows the operating style of Raju all too well and would be better off taking management control of Gangavaram rather than be just a minority investor with no say in port operations," the managing director mentioned earlier said.

Spokespeople for APSEZ, Gangavaram and Kattupalli ports declined to comment.

Meanwhile, Kattupalli port poses a different set of problems for Adani. Kattupalli Internatio-nal Container Terminal Ltd is owned by L&T Ports Ltd, a unit of L&T Shipbuilding Ltd. The container terminal, with a capa-city to load 1.2 million standard containers a year, is part of a shipyard-cum-port complex that L&T Shipbuilding built at an investment of 3,989 crore.

The terminal was opened in February 2013, but its capacity utilization has been very low partly due to weak global trade and also because of overcapacity for handling containers on India’s eastern coast, forcing L&T to consider options to stem losses.

L&T has said that shipbuilding was a core area of its expertise as it was an extension of its heavy engineering business, while running ports was not.

The port policy of Tamil Nadu under which the original deal was awarded to L&T does not permit the sale of the port, because it was structured as a so-called captive faciility without any competitive bid. A captive facility is developed by an entity for handling its own cargo.

To facilitate optimum utilization of port infrastructure, the Tamil Nadu government later permitted L&T to handle other commercial cargo at the captive facility, in line with its port development policy.

The sale, though, can happen if the state government agrees to hive off the port from the shipyard. However, such a move could lead to allegations of lack of transparency and wrongdoing. Until such segregation happens, L&T can only bring in a specialist to operate and maintain the port. L&T tried this model with Manila-based port operator International Container Terminal Services Inc. but the deal was scrapped after a year.

L&T was in advanced talks with APM Terminals Management BV (APMT) for a similar arrangement, with the understanding that APMT would acquire the terminal when the state grants approval for the segregation and sale of the port.

APMT is the container terminal operating unit of Danish shipping and oil conglomerate AP Moller-Maersk Group A/S. The group also runs Maersk Line, the world’s largest container shipping company that calls at many of India’s ports, including Kattupalli.

The deal talks, however, collapsed because APMT was averse to taking on the responsibility of getting this permission from the Tamil Nadu government and wanted L&T to get this done, a person briefed on the talks said.

Adani could be a suitable suitor for L&T. He has a potential additional motive to buy that port. APSEZ is building a 1,270 crore container loading facility at Union government-owned Kam-arajar port, which is adjacent to Kattupalli and the two facilities are separated merely by a boundary wall. The first phase of the Kamarajar facility with a capacity to load 800,000 standard containers a year is slated to begin operations in March 2016.

“There will be a price war if Adani’s Kamarajar facility has to compete with Kattupalli for the same containers. The best way to kill competition is to acquire the competing facility," said a Chennai-based port consultant.

APSEZ has done this before. Three years ago, it put in the winning bid to build a 20 mt capacity bulk cargo handling facility at Tekra near Tuna, a satellite port of Union government-owned Kandla port in Gujarat, about 60km away from Mundra port, India’s biggest commercial port, which is run by APSEZ.

Thanks to frequent congestion at the Chennai port, shipping lines have shifted some of their services to Kattupalli, making it more attractive to Adani.

“With volume increases at Kattupalli looking sustainable, the time is ripe for Adani to enter as an O&M contractor and work towards a segregation with the approval of the state government," the Chennai-based port consultant said.

“These are issues for foreign investors. Part of Adani’s success has been his ability to deal with governments cutting across party lines," said a Mumbai-based port consultant.

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