In a government-brokered deal, state-owned Chennai Port Trust will buy the 67 per cent stake it does not already own in Kamarajar Port Ltd, located a few kilometres away, from the Central Government for about Rs 2,380 crore.
At this price, the equity of Kamarajar Port is valued at about Rs 3,560 crore. This is a little more than half of the equity valuation derived when Adani Ports and Special Economic Zone Ltd (APSEZ) acquired a 75 per cent stake in Krishnapatnam Port Co Ltd for an enterprise value of Rs 13,500 crore in January.
The inter-ministerial group, the core group on disinvestment and the alternative mechanism headed by the Finance Minister, cleared the Chennai-Kamarajar deal earlier this week, an official briefed on the deal said.
“The Kamarajar stake sale would have fetched a valuation of anywhere between Rs 5,000-Rs 10,000 crore if it was auctioned,” a port industry consultant said.” “It appears the Kamarajar valuation has been worked out on the book value method, which is always less than the enterprise value,” he added. “Hence, the deal value is too low but since it is a government to government transaction, it is understandable”, he noted.
Kamarajar Port has a capacity to handle 91 million tonnes (mt) of cargo and the port handled 34.49 mt in FY19. In comparison, Krishnapatnam Port has a capacity for 92 mt and handled 54.37 mt in FY19.
Krishnapatnam had a debt of about Rs 7,500 crore at the time of the deal, whereas Kamarajar’s debt is under Rs 900 crore.
“Compared to Krishnapatnam, Kamarajar Port is bigger and has much better infrastructure, including an LNG terminal. Kamarajar also has a huge breakwater which can be used to handle cargo,” said a second consultant.
The Department of Investment and Public Asset Management (DIPAM) will sign a share-purchase agreement with Chennai Port Trust on March 27 to finalise the deal, helping the government to account for the money just four days before the financial year 2020 ends. The Kamarajar stake sale would be the last disinvestment deal for the fiscal.
The 2019 Union Budget had set a target of Rs 1,05,000 crore through stake sale in PSUs in FY20, which was scaled down to Rs 65,000 crore in the revised estimates.
Till March 12, the government has realised Rs 35,537.32 crore.
The Shipping Ministry, Kamarajar Port and Chennai Port Trust declined to comment.
Given its precarious financial position, Chennai Port Trust will finance the stake purchase mainly through loans from state-run banks led by State Bank of India, the country’s largest lender.
The acquisition will make Kamarajar Port Ltd, India’s only major port that is run as a company among the dozen owned by the Centre, a 100 per cent subsidiary of Chennai Port, which is run as a trust, a governance model the government will soon replace by converting the 11 port trusts into port authorities through an act of Parliament.
Strangely, the Demands for Grants section of the last four annual budgets of the Narendra Modi-led NDA government have referred to Kamarajar Port Ltd as Kamarajar Port Trust.
Hours before the deal is signed in Delhi on March 27, Kamarajar, a mini-ratna company, will hold its last board meeting as a PSU. Following the stake sale, Kamarajar will cease to be a PSU and hence not be subjected to the guidelines framed by the Department of Public Enterprises.