Shapoorji in talks to acquire equity stake in Karaikal port3 min read . Updated: 09 Feb 2016, 07:54 AM IST
Funds from likely deal to provide partial exit to existing investors, repay debt, infuse capital into business
Shapoorji Pallonji Group is in talks with the promoters and private equity (PE) investors of Karaikal Port Pvt. Ltd, a unit of Chennai-based realty and infrastructure group MARG, to acquire a 51% stake in the company for almost ₹ 1,000 crore, three people familiar with the matter said.
If concluded, the transaction would be among the largest in the ports sector, which has been battling a drop in outbound and inbound shipments. The deal would also help Karaikal port reduce debt on its books and provide a partial exit to current investors.
“The deal is in the works and it will take some time before it closes as it is a highly structured one. PE investors will mostly be selling a partial stake as they are upbeat about ports and do not want to sell a stake at this point in time as they are witnessing an increase in traffic," one of the three persons mentioned above said on condition of anonymity.
A second person, who also declined to be identified, confirmed the development. The two parties are in advanced talks for a potential equity sale.
Mails sent to Shapoorji Pallonji Group and Karaikal Port on Monday had not elicited a reply as of press time.
Karaikal port, located near the town of Karaikal in the Union territory of Puducherry, was commissioned in April 2009; in 2012, a clutch of PE funds invested in the company.
In May 2012, NYLIM Jacob Ballas India (FVCI) III LLC, or NYLIM-JB Fund, invested ₹ 200 crore for a minority stake in the firm. Subsequently, in June, Standard Chartered PE (Mauritius) II Ltd invested ₹ 130 crore for a minority stake. The funds were invested in the firm to increase capacity from 21 million tonnes per annum (mtpa) to 28 mtpa.
Other investors include IDFC Project Equity Co. Ltd and Ascent Capital Advisors India Pvt. Ltd which had previously invested in the company.
While some of the capital from a likely deal with Shapoorji Pallonji will go towards providing a partial exit to these investors, most of it would be used to repay debt and infuse capital into the business.
“Karaikal port is working towards a strategic deal with Shapoorji Pallonji and they will use the capital raised through equity share sale to pay off a part of their debt and also to infuse capital in their projects," said the third person mentioned above, requesting anonymity.
On 8 January, Mint reported that loans of ₹ 1,000 crore of the port were sold to asset reconstruction firm Edelweiss ARC Ltd in October-December. The firm has a debt of nearly ₹ 1,800 crore, Mint reported separately on 2 February, quoting a PE investor.
Mails sent to existing investors of the port—IDFC PE, Ascent Capital, Standard Chartered PE and Jacob Ballas NYLIM—on Monday elicited no reply as of press time.
The deal, if concluded, will come against the backdrop of a slowdown in business related to trade flows, including shipping. India’s merchandise exports contracted for the 13th month in a row in December due to tepid global demand and a volatile global currency market. Exports are projected to decline 13% from the previous year’s level to $270 billion in 2015-16, according to the commerce ministry.
Mathew Antony, managing partner at Aditya Consulting, a boutique legal and business advisory firm specializing in shipping and ports, said Indian port operators are yet to perfect a profitability model. “The Indian maritime and ports sector has never had a detailed master plan on how ancillary support business investments have to be made alongside the port development, in order to make it profitable with all its activities. Shanghai, Laem Chabang, Antwerp and Rotterdam ports have made significant investments in peripheral infrastructure to make the port business sustainable," he said.
Anthony said the promoters of the port had been ambitious in their expansion plans. “Unless and until there is a strategic investor with captive business, I will remain skeptical on the port’s revival," he added.
Antony said under present circumstances, strategic investors may be able to strike bargains even as PE funds may need to consider exiting at a loss.
According to a report by India Brand Equity Foundation, the capacity of all the major ports as of 31 March 2015 was 871.52 million tonnes (mmt), compared with 581.54 mmt in cargo traffic handled through 2014–15. Thus, the capacity utilization through 2014–15 was around 66%.
For the Shapoorji Pallonji group, this won’t be the first investment in the ports business. According to its website, group firm Simar Port Pvt. Ltd is developing an all-weather port at Chhara in Gujarat. The group is also pursuing development of other ports on a public private partnership basis, says the website.