State-owned, unlisted major ports are missing out on wealth creation

Two large mergers and acquisitions deals in the ports sector involving Adani Group in the last few days have shown what some of India’s big, unlisted state-owned ports, much bigger than Krishnapatnam and Gangavaram by volumes handled, are missing out in terms of wealth creation.

Adani Ports and Special Economic Zone Ltd (APSEZ), India’s biggest private port operator, spent ₹11,753 crore in equity to buy Krishnapatnam and Gangavaram ports.

APSEZ paid ₹6,195 crore for a 100 per cent stake in Krishnaptanam Port Co Ltd (KPCL) which handled 38 million tonnes (mt) of cargo in F21, earning ₹1,840 crore with an EBITDA of ₹1,325 crore.

It paid ₹5,558 crore at ₹120 per share for 89.6 per cent stake in Gangavaram port which handled 32.46 mt of cargo in FY21.

In FY20, Gangavaram handled 34.5 mt, earning ₹1,082 crore, with an EBITDA of ₹634 crore.

State-owned ports performance

In comparison, Central government-run Paradip Port Trust handled 114.549 mt of cargo in FY21, earning about ₹1,630 crore with an operating surplus of some ₹950 crore.

Jawaharlal Nehru Port Trust - till FY20 India’s biggest container gateway before it was overtaken by Mundra port of APSEZ in FY21- handled 64.809 mt of cargo, including 4.677 million twenty-foot equivalent units in FY21. It earned about ₹1,936 crore with an operating surplus of around ₹866.29 crore (unaudited).

Deendayal Port Trust, located in Kandla, Gujarat, handled 117.558 mt of cargo in FY21. It is yet to finalise the financial performance for FY21, which is expected to be similar to Paradip.

If Paradip, JNPT and Deendayal were to be listed on the bourses, it would fetch valuations more than three times that of Krishnapatnam and Gangavaram ports, potentially making it block-bluster initial public offerings (IPOs), netting good, much-needed money to the government.

Listing of major ports

The new Public Sector Enterprise (PSE) policy approved by the Cabinet in January has excluded the 11 major port trusts from its scope (read strategic disinvestment/privatisation).

But, a new law passed by Parliament and notified in the gazette on February 18, to convert these “port trusts” into “port authorities” could help the government list some of the 11 major ports on the bourses by invoking Section 50 of the Major Port Authorities Act, 2021.

“Without prejudice to the foregoing provisions of this Chapter, the Board (of each Port Authority) shall in discharge of its functions under this Act, be bound by such directions on question of policy as the Central Government may give in writing from time to time: Provided that the Board shall be given an opportunity to express its views before any direction is given under this sub-section. The decision of the Central Government on whether a question is one of policy or not shall be final and binding on the Board”.

The government would consider corporatising at least one major port and subsequently its listing on the stock exchanges, Finance Minister Nirmala Sitharaman said in her 2020 Budget speech.

Unless the ports are converted into companies, the government cannot list them on the stock exchanges.

Corporatisation will also help the government receive dividends from these ports.

Instead of listing the ports individually, a port consultant said that the government could also bring all the 12 ports under a holding company for listing, making the valuations even bigger.

APSEZ itself is a holding company with 12 ports/terminals under its fold to handle 544 mt of cargo.

The 12 ports/terminals run by APSEZ handled a combined 247 mt of cargo, including 7.22 million TEUs in FY21.

In comparison, the major ports handled 672.606 million tonnes (mt), including 9.611 million TEUs in FY21 as against a capacity of 1,534.91 mt.