Adani’s Strategic Moves, Closing In To Aquire Shapoorji Pallonji Group’s Rs 1,100-1,200 crore Gopalpur Port In Odhisa

Adani Ports and Special Economic Zone, India’s largest maritime company by market capitalization, is currently in advanced negotiations to acquire Gopalpur Ports in Odisha from the Shapoorji Pallonji Group.

The potential deal, valued at Rs 1,100-1,200 crore in equity, is part of Adani’s strategic plan to expand its presence along both the eastern and western coasts, a concept referred to as a “string-of-pearls” strategy.

The proposed acquisition would mark Adani Port’s sixth investment in a multi-purpose facility on the eastern coast, where it already commands a capacity of around 247 million tonnes.

The ongoing due diligence process is underway, with SP Ports Maintenance holding a 56% stake in Gopalpur Ports, while Orissa Stevedores hold the remaining share; SP Ports is wholly owned by SP Imperial Star, acting as its guarantor.

However, despite the progress in talks, there is no assurance that the negotiations will lead to a final transaction. A previous report disclosed that JSW Infrastructure was also engaged in discussions for the same asset at a significantly higher enterprise valuation of Rs 3,000 crore.

The Shapoorji Pallonji Group had earlier informed investors that the enterprise value of Gopalpur Port is estimated to be $600-650 million, with the equity value of SP Group at $240-260 million.
According to credit rating firm Care Edge, the port holds long-term bank facilities of Rs 1,432 crore as of February 2023.

Recently, SP Group made a significant divestment by selling a majority 50% stake in PNP Maritime Services (PNP Port), a facility in Raigad district, Maharashtra, to JSW Infrastructure for Rs 270 crore.

The proceeds from such asset sales are intended to repay non-convertible debenture (NCD) holders of a Rs 14,300-crore bond issued in July, considered one of the most expensive borrowings by an Indian corporate. These divestments align with commitments made by SP Group promoters, the Mistry family, to lenders and debenture holders.

According to the agreed-upon terms, the Mistrys are obligated to divest these assets by March 31 of the next year; failure to meet this obligation could result in an increase in the Payment-in-Kind Internal Rate of Return (PIK IRR) by 2%.

Gopalpur Port, operational since 2015, caters primarily to the steel industry and is strategically located along the Bay of Bengal. Since the Tariff Authority for Major Ports does not regulate it, it allows flexibility in charging competitive market rates for its services.

The port has been handling Capesize and mini-capesize vessels and has key clients, including Jindal Steel & Power Ltd, JSW Minerals Ltd, JSW Steel Ltd, and Dalmia Cement (Bharat) Ltd.

In the past two years, the SP Group has undertaken various divestments to reduce its consolidated debt, resulting in a significant decrease from Rs 37,170 crore in August 2020 to Rs 20,600 crore as of June this year.

On the other hand, Adani Ports and Special Economic Zone has been witnessing notable growth, with a 17% YoY increase in cargo volumes in the second quarter, reaching 101.2 MT.

The company’s shares have surged, reaching a record high of Rs 1,082 apiece on the BSE, backed by positive market sentiments and increased volume growth projections for the future.

The Bright Side
Earlier it was reported that the International Development Finance Corp., or DFC, concluded that short-seller Hindenburg Research’s allegations of corporate fraud against Indian billionaire Gautam Adani weren’t relevant before extending his conglomerate as much as $553 million for a container terminal in Sri Lanka.

Following the news, Adani stocks rallied, and Adani Ports and Special Economic Zone Ltd. has gained 7.4% so far this year.

The Viewpoint
Regarding India’s business realm, it’s hard to overlook the omnipresence of the Adanis, Ambanis, and Tatas.

These conglomerates, with their “local to global” approach, have woven their imprints across almost every conceivable sector, and while their monumental presence signifies economic prowess and global influence, it also raises pertinent questions about the diversity and competitiveness of India’s industrial arena.

The stronghold of these major groups has, in many ways, created a scenario where key sectors are neatly divided among them – Adani’s influence in ports and infrastructure, Ambani’s dominance in telecommunications and energy, and Tata’s legacy in steel, automobiles, and beyond.

This segmentation poses a crucial query: is it a conducive environment for other players to survive and thrive?

Operating in almost all essential industrial segments, these conglomerates often enjoy economies of scale, extensive networks, and unparalleled resources.

The question of whether there’s room for smaller players to emerge as formidable competitors in such an environment is a subject of ongoing debate. The consolidation of power within these major groups raises concerns about potential barriers to entry for new players, hindering diversity and dynamism in the market.

The Last Bit, Adani Ports and Special Economic Zone’s pursuit of Gopalpur Ports, as discussions progress, the strategic implications of this potential acquisition align seamlessly with Adani’s overarching strategy.