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The sale of Dhamra Port by Tata Steel and L&T for Rs 5,500 crore will help them cut their debt and increase buyer Adani’s footprint across India. Industry insiders say the deal was almost finalised at a meeting among senior Tata executives, L&T Chairman A M Naik and Adani Group Chairman Gautam Adani months ago. But the companies waited for the Odisha government’s permission for the second phase of the port’s expansion and clearance from the environment ministry. Once these came in by January, deal talks moved into the fast lane.
“The deal was agreed upon a long time ago but the announcement was delayed as the port had not received permission from the wildlife board,” said an L&T executive who did not wish to be named. The environmental clearance for 11 new berths will take the port’s capacity to 80-100 million tonnes from the 14.3 million tonnes it handled in 2013-14.
The port was not making money and L&T and Tata Steel, neither of which has experience in running ports, decided to sell their stakes in late 2012. The Adani group, India's biggest private port operator after aggressive expansion, immediately made an offer.
Dhamra Port’s initial project cost was Rs 3,600 crore and its debts till August 2013 were Rs 2,600 crore. Thus, analysts calculate possible capital gains from the transaction at Rs 1,400 crore (see chart).
The acquisition will pull down Adani Ports’ short-term profitability. But Dhamra Port will not only ship the Adanis’ coal from the east to the west coast but also provide stable cash flows because Tata Steel and other resources companies in east India use it for coking coal imports.
“The deal was agreed upon a long time ago but the announcement was delayed as the port had not received permission from the wildlife board,” said an L&T executive who did not wish to be named. The environmental clearance for 11 new berths will take the port’s capacity to 80-100 million tonnes from the 14.3 million tonnes it handled in 2013-14.
The port was not making money and L&T and Tata Steel, neither of which has experience in running ports, decided to sell their stakes in late 2012. The Adani group, India's biggest private port operator after aggressive expansion, immediately made an offer.
Dhamra Port’s initial project cost was Rs 3,600 crore and its debts till August 2013 were Rs 2,600 crore. Thus, analysts calculate possible capital gains from the transaction at Rs 1,400 crore (see chart).
The acquisition will pull down Adani Ports’ short-term profitability. But Dhamra Port will not only ship the Adanis’ coal from the east to the west coast but also provide stable cash flows because Tata Steel and other resources companies in east India use it for coking coal imports.
The deal will add about 27 per cent more, or Rs 3,000 crore, to Adani Port's 2013-14 net debt of Rs 11,200 crore.
Tata Steel had invested in the port to help it ship products from its new plant in Kalinga Nagar. The plant will start production by this year-end. Over the past few years, Tata Steel’s borrowing has risen alarmingly after the acquisition of Corus and it has been selling assets to reduce debt.
Tata Steel’s net debt increased from Rs 56,215 crore in March 2013 to Rs 70,095 crore in March 2014. Analysts expect this to rise to Rs 75,826 crore by March 2015. By selling its 50 per cent stake in Dhamra Port, the company will be able to reduce its debt marginally and exit a non-core business, say analysts.
