Bengaluru: Dubai-based port operating firm DP World Ltd plans to sell shares through an initial public offering (IPO) and list its new Indian holding company, Hindustan Ports Pvt. Ltd (HPPL).
The development comes after the Union cabinet said it had “no objection" to the proposed change in shareholding in the container terminals run by the Dubai government-owned company in India.
DP World has invested about $1.2 billion and is currently the biggest foreign port operator in India—running six port terminals spread across Mundra, Jawaharlal Nehru Port (two facilities), Cochin, Chennai and Visakhapatnam.
These six terminals have a combined market share of about 30% of the 10.7 million twenty foot equivalent units (TEUs) handled by Indian ports during 2014-15. A TEU is the standard size of a container and a common measure of capacity in the container business.
“When all the six entities, which are currently run by separate special purpose vehicles come under HPPL, it will go for an IPO," said a Mumbai-based banker briefed on the development. “That’s the plan," the banker said, without giving a time frame or details of the share sale. The banker also requested anonymity as he is not authorised to speak with the media.
If that happens, DP World would become only the second global port operator to be listed in India, after Gujarat Pipavav Port Ltd (GPPL), the entity that runs the Pipavav port in Gujarat.
GPPL is majority-owned by APM Terminals Management BV—the port operating unit of Danish shipping and oil conglomerate AP Moller-Maersk Group AS.
DP World said it had no comment to offer on the cabinet decision, on the planned restructuring of its Indian assets, or on the share sale.
Through Hindustan Ports, DP World is seeking to restructure its assets in India with the objective of consolidating the ownership of its port infrastructure into a single holding company. The new holding company will take over all liabilities of the existing subsidiaries of DP World in relation to the concession agreements it signed with port authorities for these six terminals.
A concession agreement sets out the terms and conditions of a port contract.
The proposal of DP World, cleared by the Foreign Investment Promotion Board (FIPB) in 2012, is intended to help expand the capital base and enable fresh investments in ports and logistics infrastructure in India.
This will enable efficient access of finance and introduce latest technology in port operations, the government said in a statement after the cabinet meeting. “The government has agreed to the proposal for restructuring by DP World, subject to the condition that the net worth of the holding company HPPL after acquisition of the shares of the project SPVs shall be higher than US $80 million," it said. “The restructuring of the assets of DP World in India will help in better coordination and control as the port authorities have to deal with a single company registered in India. The approval of the consolidation proposal of DP World will also facilitate promoting foreign direct investment in the country and signal the investor-friendly ambience in the port sector. This may also lead to greater transparency and better compliance to Indian laws and regulations."
“By setting up a new holding company, DP World is ‘Indianising’ its investments into terminal assets in India that were earlier routed through the tax haven of Mauritius," said a port industry executive, who too did not want to be named. “In those days, routing investments through Mauritius was fashionable. It is no longer so. Moreover, the strategy adopted by several global firms of routing investments into India through Mauritius has attracted criticism recently."
DP World will directly route the investments already made into India, rather than through Mauritius, the banker mentioned earlier said, as the Indian government authorities closely monitor routing of foreign direct investment from tax favourable jurisdictions, such as Mauritius.
“All the recent initiatives taken by the Indian government have certainly made the structuring of transactions from tax-favourable jurisdictions more difficult. The investments made through said jurisdiction are facing increasing scrutiny from the exchequer," said a Mumbai-based executive at one of India’s top law firms, asking not to be named.