Adani Arm Set to Buy GMR Group’s Greenfield Port/SEZ in Kakinada

Adani Ports and Special Economic Zone Ltd (APSEZ) is set to buy an under-construction greenfield commercial port in Kakinada and the adjoining SEZ located at Kona village in Thondangi mandal of East Godavari district, promoted by the Hyderabad-based GMR Group.

APSEZ, according to multiple sources, will take over the port and the SEZ fully from the GMR Group.

This could be APSEZ’s second big acquisition in the ports sector in Andhra Pradesh on the country’s eastern coast after the January 3 announcement of a deal to buy a 75 per cent stake in Krishnapatnam Port Company Ltd, the entity that runs a private deep-water port at Krishnapatnam in Andhra Pradesh’s Nellore district, for an enterprise value of ₹13,500 crore.

The equity portion of the Krishnapatnam deal (excluding the debt held by the port operating company of about ₹7,500 crore) is valued at about ₹6,000 crore, of which APSEZ paid about ₹4,500 crore, according to people familiar with the deal.

The twin acquisitions will help APSEZ expand its presence in Andhra Pradesh where it has limited presence now with only a dry bulk cargo handling terminal at the Central government-owned Visakhapatnam Port Trust.

The acquisition of the upcoming Kakinada Port and the SEZ would strengthen APSEZ’s portfolio along the eastern coast where it operates ports and terminals — Dhamra in Orissa, Kattupalli and Kamarajar in Tamil Nadu and Krishnapatnam in Andhra Pradesh.

Barring its Vizag facility, where the tariffs are regulated by the rate regulator for major port trusts, the remaining facilities have freedom to set rates based on market forces.

A strategic move

“The hinterland for Krishnapatnam port is not common with Dhamra and as such, the two ports cater to different parts of the country, and this in part explains APSEZ’s strategy of acquiring Krishnapatnam to serve a new and less-served hinterland,” a port industry consultant said.

The hinterlands of the Kakinada port, the Vizag port, the Chennai port, the Ennore port, the Kattupalli port, the New Manglaore port, JNPT and the Mumbai port overlap with the hinterland of the Krishnapatnam port.

“In the relevant hinterland, APSEZ’s current facilities in Kamarajar and Kattupalli handle a small share of cargo and are in no way dominating. For example, APSEZ handled around 8 per cent of containers in the region in 2018-19 and even post Krishnapatnam acquisition, the combined market share moves only to 13 per cent,” the consultant said.

“Competition between ports is more likely to occur in those regions where no single port has a significant cost advantage over other ports. Further, the tariff offered by the players in the relevant markets is also regulated by the Tariff Authority for Major Ports (TAMP), the rate regulator in the case of major port trusts, and consequently, the prices charged by all competitors (including non-major ports) fall within the same pricing range,” he added.

APSEZ declined to comment, while GMR officials sought a day's time to respond.

Kakinada Gateway Port Ltd, a unit of GMR Infrastructure Ltd-promoted Kakinada SEZ Ltd, was awarded the rights by the Andhra Pradesh government to build and run a greenfield commercial port for a concession period of 30 years, which can be extended by 20 years.

The deal is expected to be announced after the two sides work out an arrangement to comply with the share lock-in clauses stipulated by the concession agreement for the original promoter (GMR).

The Kakinada SEZ industrial park is strategically located on the Vizag-Chennai Industrial Corridor in East Godavari district and offers approximately 8,521 acres of industrial land, while the commercial port spread will be developed over 1,811 acres.