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Adani Ports may buy stake in Vizag Seaport terminal

Adani Ports and Special Economic Zone Ltd (APSEZ), the operator of India’s biggest private port at Mundra in Gujarat, may buy a stake in a privately run multi-commodity terminal at the Union government-controlled Visakhapatnam port in Andhra Pradesh as it seeks to bolster its presence on the country’s eastern coast and expand its port business, three people familiar with the plan said.
Mumbai-listed APSEZ is 77.5% owned by Adani Enterprises Ltd, the flagship business of billionaire Gautam Adani.
Vizag Seaport Pvt. Ltd is 74% owned by Mumbai-listed Gammon Infrastructure projects Ltd (GIPL). Lastin Holdings Ltd and Precision Shipping Ltd hold the balance stake. Lastin Holdings is the investment arm of S S Global—promoted by Trinamool Congress law-maker S.S. Bose.
“APSEZ has shown interest in buying a stake in the terminal,” an executive at Vizag Seaport, one of the three persons cited earlier, said on condition of anonymity because he is not authorized to discuss the matter publicly. “A team from APSEZ had visited the terminal a few days ago,” he said.
Vizag Seaport is the largest multi-commodity terminal operating at Visakhapatnam port, India’s second biggest cargo handler by volume. The terminal can handle all types of cargo except petroleum, oil and lubricants. It started operations on a 30-year contract from 28 November 2001 and loaded 5.55 million tonnes (mt) of cargo in the year to March 2012 from two berths.
“We are a low royalty-paying, multi-commodity terminal and could potentially be of interest to many port operating firms having their own captive cargo,” R. Kishore, chief executive officer of Vizag Seaport said. He declined to comment on APSEZ’s interest in the terminal.
A spokesman for Adani Group said it would not respond to speculation.
Apart from being India’s biggest private port operator, the Adani Group is also the country’s largest coal importer and trader.
Port contracts at Union government-controlled ports are decided on the basis of revenue share/royalty. The entity willing to share the most from its annual revenue wins the cargo-handling deal, typically stretching 30 years.
Vizag Seaport shares 17.111% of the annual revenue collected from customers on berth hire and wharf-age with Visakhapatnam port, which translates to about 7% on a gross revenue basis. This compares with the 40-50% revenue share currently offered by private firms for new port contracts.
APSEZ is itself developing a Rs.300 crore, 6.5 mt capacity a year coal import terminal at Vizag port wherein the firm will share 40.1 % of its revenue with the government-owned port.
“Vizag Seaport is not keen to divest a stake in the terminal. But, if somebody offers a good price, we may take a call on selling stake at that point,” said an executive at Gammon Infrastructure Projects, the second person cited earlier. He, too, declined to be identified because of company policy on speaking to reporters.
Subhrarabinda Birabar, head of port sector at Gammon Infrastructure, declined to comment.
Buying a stake in Vizag Seaport will help the Adani Group achieve its ambition of creating a port handling capacity of 200 mt by 2020, said an executive looking after infrastructure practice at the Mumbai-office of one of the global audit and consulting firms.
Adani currently has port operating assets that can load about 115 mt of cargo and most of these are located on India’s western coast—a big chunk of it in Gujarat—the home-state of Gautam Adani. The firm’s only facility on the eastern coast is the coal terminal it is developing at Vizag port, he said, asking not to be named.
Since November 2010, APSEZ has been denied security clearance by the Union home ministry to bid for projects such as the fourth container terminal at Jawaharlal Nehru port, a project to mechanise iron-ore loading facilities at Vizag port, operating Vizhinjam port in Kerala and a fertilizer loading facility at Vizag port. The reasons for denial of security clearance, a big blow to the firm’s port expansion plans, have not been disclosed by the government.
Vizag Seaport is designed to load 9 mt cargo. But, due to depth restrictions and a lack of adequate storage capacity, it is currently able to load about 6 mt of cargo. Currently, the terminal has a depth of 11 metres and can accommodate ships with a cargo carrying capacity of 46,000 tonnes. It has a back-up area of 10 acres that is operating at full capacity.
The government-owned port has recently hired a dredging contractor to deepen the channel to 14.5 metres and has allotted a further 30 acres of land to Vizag Seaport to increase its storage capacity.
“Once the depth is increased to 14.5 metres and the additional back-up area is fully developed with rail-sidings, we will be able to take the capacity to 9 mt in two years,” Kishore said. At 14.5 metres, the terminal will be able to receive ships with a cargo carrying capacity of 80,000 tonnes, he said.
Vizag Seaport is free to sell its stake and even exit from the facility, having crossed the lock-in period for promoters holding specified in the agreement signed with the port, Kishore said.
The terminal recently finalized a fresh loan of Rs.350 crore from IDFC Ltd which was used to pay off an earlier loan of Rs.198 crore taken from State Bank of Patiala and Punjab National Bank and the balance is being used to fund development plans.
Source: Livemint

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