Indian ports handle almost 90 per cent of the country’s international trade volume. Of this, 55 per cent is handled by the major ports and the remaining by non-major ports. The prominence of the latter has been increasing over the years due to their strategic locations and extensive participation in optimising hinterland connectivity. Acquisitions in the port sector have not been a usual trend, as is being seen in the road, renewable energy and logistics sectors. The shipping industry has also witnessed limited transactions. In a major departure, there has been some activity in both the spaces in the past two years. Going forward, the proposed corporatisation of at least one major port under Union Budget 2020-21, the upcoming National Logistics Policy, etc. are expected to bring new players into the ports and shipping sector.
Mergers and acquisitions (M&As), including private equity (PE) investments, in the ports and shipping sector have only been a handful over the years due to the public sector-dominated nature of the sector. Since 2014, only 19 M&A deals have been registered for a total value of about Rs 420 billion. Of the total deal value, the acquisitions by Adani Ports and Special Economic Zone Limited (APSEZL) occupied a share of 52 per cent, reaffirming the prominence of this player in the sector. However, the past two years (2018 and 2019) witnessed a pickup in M&A activity with 10 deals being recorded for about Rs 229 billion. This was on account of a twofold strategy by companies – inorganic growth and tapping opportunities emerging from insolvency proceedings.
The major ports have been meeting their funding requirements through dollar-denominated bonds which result in a lower cost of debt. With regard to the privately run non-major ports, APSEZL is the largest operator and has been acquiring small as well as stressed ports for inorganic growth. A recent instance is the announcement to acquire Dighi port, which is currently facing insolvency proceedings. In 2018, Dighi Port Limited witnessed the commencement of insolvency proceedings under the National Company Law Tribunal (NCLT), following a petition by one of its operational creditors. The facility, owned by Balaji Infra Projects Limited and Infrastructure Leasing & Financial Services Limited, owed over Rs 30 billion to a consortium of 16 banks led by the Bank of India. This marks the entry of APSEZL into Maharashtra, one of the three coastal states in which it does not have a presence. The other two states are Karnataka and West Bengal. As per APSEZL’s resolution plan, the company will pay Rs 6.5 billion to the financial creditors, a 78 per cent haircut for them. In the shipping industry as well, Tebma Shipyards is undergoing the corporate insolvency resolution process. State-owned Cochin Shipyard Limited has been declared as the successful resolution applicant by the lenders to Tebma Shipyards.
Within the port segment, the following deals were struck:
- Recently, in January 2020, the Adani Group announced its decision to acquire a 75 per cent stake in Krishnapatnam Port Company Limited for an enterprise value of Rs 135.72 billion. The transaction, an all-cash deal, will be funded through internal accruals and cash balance of Adani. After Dhamra and Kattupalli, this is the third port to be taken over by the Adani Group. It acquired Dhamra in 2014 and Kattupalli in 2018. The acquisition of a majority stake in Krishnapatnam port is the biggest deal in the sector so far.
- In a bid to meet its disinvestment target, the government, in March 2019, carried out a 73.47 per cent stake sale of the Dredging Corporation of India (DCI), which was bought by a consortium of four or port trusts. Of the 73.47 per cent, the Visakhapatnam Port Trust bought 19.47 per cent, the Paradip Port Trust 18 per cent, the Jawaharlal Nehru Port Trust (JNPT) 18 per cent and Deendayal Port Trust 18 per cent. The Rs 10.56 billion transaction is expected to reap synergies in the value chain, as it will internalise the dredging costs of future works at these ports.
- In March 2019, the Cabinet Committee on Economic Affairs granted in-principle approval for the strategic disinvestment of the central government’s share in Kamarajar Port Limited (KPL) to the Chennai Port Trust (ChPT). KPL is under the administrative control of the Ministry of Shipping with a 67 per cent stake held by the central government and the remaining 33 per cent by ChPT (prior to the transaction). The disinvestment transaction, a single-stage process by following arm’s-length principles, is estimated to be worth Rs 40 billion-Rs 50 billion.
Despite the high PE interest in the logistics and warehousing space, PE funding has been subdued in the ports and shipping sector. The only noteworthy deals were the $147 million (approximately Rs 10 billion) funding by Camas Investments (a wholly owned subsidiary of Temasek Holdings) in APSEZL in June 2018 and Fairfax India’s investment of $72 million (approximately Rs 5 billion) in Seven Islands Shipping in March 2019.
Recently, the National Infrastructure Investment Fund (NIIF), in partnership with DP World, set up Hindustan Infralog Private Limited (HIPL), through which it seeks to invest up to $3 billion of equity across the entire ports and logistics value chain. The NIIF-DP World collaboration has already made investments in the warehousing space. However, no deal has taken place in the port segment yet.
Favourable policies such as 100 per cent foreign direct investment, revision of the model concession agreement and tax exemptions for infrastructure development at ports have attracted a number of international players such as PSA International, DP World and APM Terminals. Besides, international players (such as DP World) are also looking to consolidate their assets. The privatisation plan of the Container Corporation of India is expected to draw marquee investors and see the likely sale of two port terminals. Port assets of Sical Logistics are also on the block, following the holding company’s strategy to deleverage subsidiaries on account of financial stress. Thus, the sector is offering acquisition opportunities to strategic investors.
Despite a slowdown in global trade due to headwinds such as the US-China trade war, breakout of coronavirus, Brexit, etc., there are opportunities for the shipping and logistics industry in emerging countries like India. The proposed National Logistics Policy is expected to provide the much-needed fillip to the supply chain segment, thereby lowering overall logistics costs. The policy is expected to address the issue of arbitrary and unfair charges levied by shipping lines. The government is also accelerating efforts to transform the country into a transshipment hub, and this will further the growth of the shipping industry.