Pipavav Port told to escrow foreign investor funds

The state government of Gujarat has asked Gujarat Pipavav Port to create an escrow account for putting all the all the Rs 420 crore investment planned by foreign investors.

The account is supposed to be jointly operated by the port, foreign investors and the state government. The three parties are required to sign a memorandum of understanding to make this agreement operational, according to highly placed sources.

Foreign financial institutions and strategic investors, such as Denmark's A P Moller, had evinced interest in increasing their equity stake in the port to 100 per cent by investing about Rs 420 crore.

However, the state government was against granting permission, since the port's promoter owes about Rs 60 crore to various state government institutions.

In its meeting held earlier this month, the Foreign Investment Promotion Board (FIPB) allowed the port to proceed with the foreign investment plan, subject to putting all the proceeds in a joint escrow account.

At present, foreign investors hold 49 per cent stake in the country's first private sector port. The investment would be in existing as well as new equity. The port has already drawn an equity investment of Rs 743 crore.

The investors who are interested in further investment in the port include: A P Moller, PSA Corporation of Singapore, New York Life of the US and AMP of Australia, sources added.

In its application to the government seeking permission for increased foreign stake, the port said, "A P Moller has proposed to increase its stake in Gujarat Pipavav and maintain it at minimum 26 per cent at all times from its current shareholding of 12.5 per cent." It also said there were other existing as well as new investors who intend to increase stake and invest in the port.

While asserting that the rider on escrow account will 'have a severe blow on our cash flow planning," the port's promoter has agreed to escrow the entire amount receivable.