Adani Ports and Special Economic Zone Ltd (APSEZ), which is set to buy Dhamra Port Co. Ltd for Rs.5,000 crore, has been appointed as a management consultant to Dhamra Port, an equal joint venture of Larsen and Toubro Ltd (L&T) and Tata Steel Ltd, according to two people close to the development.
This is the first time in India a potential acquirer is coming on board at a target company ahead of an acquisition.
"Dhamra Port wanted the expertise of Adani Ports in running the port. Adani Ports was more than happy to extend its help," said one of the people. The second person said Citibank NA is advising Dhamra Port on potential stake sale and a deal would be concluded shortly. Both requested anonymity.
Citibank, L&T, Adani Ports and Tata Steel declined to comment.
The Adani Group-controlled Adani Ports is set to buy Dhamra port in Odisha after its operator secured environmental and coastal clearances for its second phase of expansion, Mint reported on 22 October.
Being named as a consultant before the potential acquisition will give Adani Ports a chance to evaluate the proposal in a better way, according to Atul C. Kulkarni, an independent maritime consultant.
"It is a welcome move by Adani Ports," Kulkarni said. "Dhamra is a great location for the companies that are looking to enhance non-container operations in the east coast of India."
He did not rule out an overseas port company challenging the bid of Adani Ports in the last minute, considering the locational advantage for bulk cargo on the east coast.
"An acquirer playing the role of a consultant to the target firm reflects transparency in deal-making process. The acquirer is able to get insights into the business it plans to acquire. There are no surprises for both sides. At the same time, the buyer is able to maximize the value of the asset or firm before it pays for it by providing operational expertise and business know-how," said Vishwas Udgirkar, senior director at Deloitte India, a consultancy.
If the deal goes through, it will be one of the largest in India's port's sector.
Dhamra Port was awarded the rights by the Odisha government in 2004 to develop and operate the port for 30 years with an option to extend the contract for two additional periods of 10 years each.
The first phase of the port, which has a capacity to load 25 million tonnes (mt) of cargo, cost about Rs.3,200 crore to build. It started commercial operations in May 2011 from two fully mechanized berths capable of handling coking coal, steam and thermal coal, limestone and iron ore.
Experts say being a non-major port, Dhamra is a good proposition for Adani Ports as it is a harbour outside the control of the federal government and is free to set its own rates. In comparison, rates at the Union government-controlled ports are set by the Tariff Authority for Major Ports, or TAMP. Located between government-controlled Haldia and Paradip ports, Dhamra is one of the deepest ports on India’s eastern coast, capable of allowing the biggest of the dry bulk ships with a capacity to load as much as 180,000 tonnes of cargo to dock.
The master plan of the Dhamra Port envisages 15 berths, capable of handling more than 100 mt per annum of bulk, container and general cargo.
On Tuesday, rating firm ICRA Ltd said cargo traffic registered a modest growth during the second quarter of financial year 2014, with a 6% increase in volumes in the first half compared with a 1% contraction recorded in the year-earlier period and a 2% increase on a sequential basis.
"The growth at Adani Port's flagship, Mundra port, has been driven mainly by upscaling of liquid cargo and dry bulk volumes, which registered a combined increase of 31%, even as container traffic growth has been relatively muted at about 18% year-on-year," it said.
Shares of Adani Ports fell by 1.94% to Rs.156.80 on BSE, while the exchange's benchmark Sensex declined by 0.39% to 21,171.41 points.