14-Nov-2013
TPG Capital India is set to buy a majority stake in Karaikal Port Pvt. Ltd. The US-based private equity (PE) firm has entered into a so-called exclusivity agreement with the port and will invest at least Rs.1,000 crore to acquire stake from existing investors and promoters, said two people close to the development.
Located in Puducherry, the 47-million metric tonnes per annum (mmtpa) deepwater Karaikal port has a total investment requirement of Rs.4,000 crore. The project is expected to be completed by 2018.
“TPG does not comment on market speculation,” a company spokesperson said. G.R.K. Reddy, promoter and director at Karaikal Port, did not reply to phone calls and text messages on Wednesday and Thursday.
A port executive said TPG Capital is keen to invest in the firm. “Indeed, TPG is interested in investing but it is too premature to talk about it at this point of time,” he said, requesting anonymity.
A final valuation is yet to be arrived at and decisions pertaining to dilution of promoter stake and exit of existing private equity investors are still being finalized, the port official said.
At present, PE investors hold about 49% stake in Karaikal Port, a unit of infrastructure development firm Marg Ltd. “The promoters will also dilute some of their stake to offer majority shareholding to TPG,” said one of the people mentioned above.
So far, the PE firms have invested about Rs.680 crore in the company. Among the firms, Standard Chartered Private Equity Advisory (India) Pvt. Ltd has invested Rs.130 crore and Jacob Ballas India has invested Rs.200 crore. The port has also attracted private equity investment from IDFC Ltd and Ascent Capital Advisors.
“Discussions are still being held around valuations and it’s certain that TPG will at least invest Rs.1,000 crore to begin with. Negotiations with existing investors are also on. Depending upon how much the investors are ready to sell, promoters will consider the extent of their stake dilution,” another of the people cited earlier said.
The transaction will mark TPG Capital’s entry in the Indian port sector. The PE firm is the global buyout group of TPG, a global investment firm with over $55 billion capital under management.
The plan to bring TPG as an investor falls in line with Karaikal Port’s strategy to develop port infrastructure and increase operational efficiency. It is looking to strengthen its four divisions—coal handling, agricultural commodities, liquid cargoes and container handling—through partnerships.
“The primary objective of creating these four verticals is not to attract equity at these project-level businesses, but to get long-term contracts that can get bigger volume in respective verticals,” G.R.K. Reddy had said in a phone interview in June. Reddy also said that the firm was not raising fresh funds at that moment but was open to further equity dilution if needed.
The port is in the second stage of development and the total cost for the phase-II development is pegged at around Rs.2,800 crore.
PE firms seem to have a positive view on the port sector in India despite the current economic slowdown.
“Private ports in India present an exciting opportunity for PE investors, who are willing to make longer term investments, as there exists high growth potential on the back of increased international trade,” said Darius Pandole, partner at private equity firm New Silk Route Advisors Pvt. Ltd. “Additionally, private ports can benefit from market-determined tariffs that could result in healthy margins for various lines of port-related businesses.”
Non-major private ports, falling under state-government administration, have the independence to fix their own tariff. Karaikal Port is a minor port and has flexibility in pricing.
A PE investor is a better choice compared with debt that needs to be serviced regularly, an executive of a leading consulting firm said, requesting anonymity. “In case of equity investment, the company can buy out shares from private equity firms whenever the turnaround happens,” he said.
Source:- livemint.com
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