Dubai-based DP World has taken the Adani Group-owned Mundra Port and Special Economic Zone (MPSEZ) to the high court over breach of contract for allegedly going ahead with the building of a container terminal as part of the port's second phase expansion.
DP World, operator of Mundra International Container Terminal (MICT), a P&O Ports terminal which it took over following its acquisition of the UK-based port operator in 2005 for US$6 billion, alleged that according to the sub-concession agreement between P&O and the MPSEZ, the port was obliged to hand over all the assets related to the new terminal - a quay wall of 618m and 19.63 ha of land - to MICT for a sum of $70 million to develop the second container terminal facility.
DP World took the case to the Ahmedabad high court alleging breach of "non-compete obligations" after failing to get an injunction against the MPSEZ over the building of the terminal from the Ahmedabad civil court.
The MPSEZ went ahead with the building of the second container terminal, which has two berths, one of them already operating and the other to begin operations this month. Mundra, with a depth of 17.5m, is the largest private port in India. Located 60km west of Kandla Port in Kutch district of Gujarat, it has eight multipurpose berths that can handle all types of dry and liquid bulk cargo. There are two container terminals, one owned by DP World that has two berths and the other the new container terminal, which is the bone of contention between the two groups.
Mundra, the most modern Indian port, is strategically located with respect to the northern and western hinterland, to which it is well-connected by both rail and road.
MICT chairman and managing director, Ganesh Raj, said: "We intend to exhaust all available appellate remedies to obtain an injunction against MPSEZ." Raj is also DP World's senior vice-president and managing director for the Indian sub-continent.
Besides the handover of the second container terminal, MICT also alleged that the signing of a memorandum of understanding by the Adani Port Infrastructure (APIPL) for the takeover of Dholera Port was against the terms of the deal between P&O and MPSEZ. According to the MICT, APIPL is a party to the framework agreement as well as Gautam Adani, chairman of the MPSEZ, and it alleged that the framework agreement precluded MPSEZ and its promoters from developing or investing in any other container terminal business anywhere in Gujarat for 10 years until November 8, 2012.
A related concession agreement also prohibits Gujarat Adani Port (GAPL) from developing any container terminal facility until 1.5 million TEUs were achieved, or 12 years, whichever is later. alleged the MICT.
Under the terms of the agreement, said MICT, the Adanis were required to get the approval from the Gujarat Maritime Board for the handover of the quay wall as core assets. However, the Adanis started operating a second container terminal at the port from August 2007, which was built at a cost of $158 million.
Adani said they began operations at the terminal in August as the deal between the Adanis and P&O Ports is under a cloud following its takeover by DP World.
A MPSEZ official admitted they had signed a non-compete clause with P&O Ports. "But with DP World's takeover of P&O's terminal without prior consent from the Gujarat Maritime Board and the Adani group is a clear violation under the sub-concession agreement between us and P&O Ports," he claimed. As far as Dholera Port is concerned, he said Dholera Port and SEZ is a separate company, and that the non-compete clause is not applicable.
DP World has also filed complaints against the Adanis and MPSEZ with stock market regulator Sebi, which has already given the go-ahead to MPSEZ's IPO (initial public offering), the first by a port company in India. MPSEZ is aiming to raise $438 million from the IPO for port expansion and capital expenditure. The IPO offering was made on November 1 and closed on Nov 7. The share was trading at 4.7 times the offer price in the grey market.
On October 16, MICT complained to the Sebi that the draft prospectus for the IPO was a red herring as it did not make full disclosure of the deal with P&O. The draft was amended, including additional risk factors for potential shareholders to consider before investing. But that did not satisfy MICT and a day before the launch of the offering it wrote another letter of complaint to the Sebi, alleging that the amended prospectus had not made adequate disclosures.
"The RHP deliberately mentions the payment of $70 million for the second stage assets without mentioning that these are the 'mutually agreed terms' between the parties. It would significantly affect the company's valuation. Such a vital issue was never mentioned in the DRHPs (draft red herring prospectus) and has only been mentioned in passing in an unrelated part of the RHP concerning court proceedings," alleges the MICT letter.
Top officials of the MPSEZ said that DP World has fought a legal battle on these issues without any success. "The IPO managers can't amend the prospectus if it's not a reality," said one official.
The DP World case has opened a can of worms and analysts said the MPSEZ faces a long-running legal battle.
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