Dredging Corp stake a raw deal for port trust consortium, say experts

Stake buy by a private entity could do more justice to the asset, they said

Absence of synergies coupled with no-cost advantage will make buying of government stake in Dredging Corporation of India (DCI) a raw deal for the consortium of four port trusts, sector experts said on Monda
y.

The Union Cabinet, last week, approved the sale of government stake in the company to the consortium of four ports - Visakhapatnam Port Trust, Paradip Port Trust, Jawaharlal Nehru Port Trust (JNPT), and Kandla Port Trust.

The government currently holds 73.44 per cent in DCI and has aimed to raise Rs 800 billion from public sector undertaking disinvestment. This deal is also part of the same divestment plan.

“There is no business sense in this deal. The consortium port trusts can get dredging done at competitive rates if the scope of work is tendered rather than handed over to DCI. Due to this, ports will lose out on the cost advantage,” said Shailesh Garg, director, Drewry Maritime Advisors. The UK-based Drewry provides independent market research services to the maritime and shipping industry.

“There are no synergies between two sides of the deal as ports do not have any expertise to scale up operations of DCI. It looks more like the government meeting its divestment target via this route,” said one of the port consultants.

Annually, the 12 major ports of the country together spend Rs 6-8 billion on maintenance dredging. Among the consortium port trusts, Visakhapatnam and JNPT need maintenance dredging once in three years, while Paradip requires dredging for six to seven months annually; Kandla for eight to nine months.

“This stake buy will help us give dredging, mainly capital dredging contracts, on a nomination basis (without tendering) to DCI in cases of emergency. If we go for tendering during an emergency, it takes time. Moreover, European participants charge a huge premium. An in-house dredging company like DCI will come in handy in such a situation,” said Krishna Babu, chairman, Visakhapatnam Port.

Of the 12 major ports in the country, Kolkata is the only port which needs maintenance dredging on a daily basis for 365 days of the year due to high siltation.

Between the west and east coast major ports, the requirement for maintenance dredging on the east coast is relatively higher as the area is more cyclone/flood prone, which leads to frequent siltation reducing the draught.

Industry officials were of the view, that ideally, the government stake should have been auctioned and that a private dredging company would have done more justice to DCI operations.

“DCI does not have the capability to compete at the global level where the requirement for dredging is far higher and where business can get bigger for the company. A private entity could have acquired and scaled it up to that extent,” said Garg.

Adani Dredging, Dharti Dredging, and Mercator are among the domestic private dredging companies operating in India.

DCI has over 35 years of presence in the dredging sector and provides dredging services in the shipping channels of major/non-major ports, naval establishments, fishing harbours, power plants, state governments, private organisations, shipyards, and other maritime organisations. The company mainly relies on government orders for generation of its revenue stream.

DCI has been witnessing a continued decline in revenue over the last few years due to ageing dredgers and prolonged lay-ups of dredgers, leading to an increase in dry docking expenses and loss of revenue, said a CARE Ratings report.

“While the company (DCI) has a total debt of over Rs 8 billion, its high receivables are also a big hurdle and sum up to Rs 2 billion of the total debt,” said Hitesh Avachat, group head–corporate ratings, CARE Ratings.