Private equity funds struggling to find exit routes in Indian port investments

Visual from Gangavaram port website.

Private equity (PE) funds that invested $1.2 billion in India’s ports since 2007 stayed away from the sector in 2015 as existing investors struggle to cash out.

The port sector, which has seen lower traffic due to falling exports, saw only one investment worth $25 million in 2014 and just two exits worth $1.6 million in 2015.

Investors in private ports like Karaikal, Krishnapatnam and Gangavaram are finding it tough to exit their investments made five to eight years back.

A fall in exports due to a sluggish global economy and a high level of debt on the balance sheets of some of the firms in the port sector are seen as reasons behind the decline in fresh investments in the sector.

“Private equity firms invested in port projects earlier with a certain expectation of growth. The traffic growth in the market has however not been in line with expectations, owing to inefficiencies in port operations, cost-inefficiency and non-competitiveness of the cargo,” said Jaideep Ghosh, partner and national head–transport, leisure and sports, KPMG India.

Karaikal Port Pvt. Ltd (KPPL), a unit of Chennai-based realty and infrastructure group MARG, has been struggling with high debt and working on options to refinance or restructure its debt. Loans worth Rs.1,000 crore of Karaikal port were sold to Edelweiss ARC Ltd last year. Its gross debt is at about Rs.1,800 crore, according to a fund manager at a PE firm that has invested in KPPL.

IDFC Project Equity Co. Ltd, Ascent Capital Advisors India Pvt. Ltd, Jacob Ballas Capital India Pvt. Ltd and Standard Chartered Private Equity Advisory India Pvt. Ltd have invested in Karaikal port. Spokespersons at all PE firms declined to comment.

“Our investment was made when trade in India was doing well. However, a fall in the global as well as Indian economy affected the traffic at ports badly. If the equity and debt of these ports is restructured well, we will be in a position to exit the investments in the next 3-5 years,” said one of the investors in Karaikal port, requesting anonymity. A Karaikal port spokesperson did not respond to an email query sent on Monday.

India’s merchandise exports contracted for the 13th month in a row in December due to tepid global demand and a volatile global currency market. India’s exports are projected to decline 13% from the previous year’s level to $270 billion in 2015-16, according to the commerce ministry.

The port sector saw its biggest PE investments in 2007 when about $500 million was invested. Of the $1.2 billion in PE investments made since 2007, exits worth $745 million have been secured so far, according to data from VCCedge.

However, in some cases, exits are proving to be tough.

Krishnapatnam Port Co. Ltd (KPCL), the developer and operator of the leading port at Krishnapatnam in Andhra Pradesh, has been engaged in a battle with investor 3i Group, which has not been able to sell its seven-year-old investment. 3i has approached the company law board against the management, seeking an exit from the company. 3i India Infrastructure Fund had invested $161-million in Krishnapatnam port in 2009 to acquire about 10% stake. A 3i spokesperson declined to comment.

“We are looking at a strategic investor,” Chinta Sasidhar, managing director of KPCL, told Mint last year. KPCL said it was looking to partner with Japanese companies such as Mitsubishi Corp. and Sumitomo Corp., which are into coal trading, according to the report. However, no deal has been made so far. A KPCL spokesperson did not respond to an email sent on Monday.

US-based PE firm Warburg Pincus, which acquired a 30% stake in India’s deepest port, Gangavaram Port Ltd, in 2008, is also looking to exit its eight-year old investment.

“Adani Ports and Special Economic Zone Ltd (APSEZ), part of Gautam Adani-led Adani Group, is in talks with the promoters of Gangavaram port in Andhra Pradesh as well as Karaikal and Larsen and Toubro’s Kattupalli ports in Tamil Nadu,” Press Trust of India reported on 15 July 2015.

A spokesperson at Warburg Pincus declined to comment, while a spokesperson of Gangavaram port did not respond to emails sent on Monday.

“PEs are also sometimes bound to a port project by different terms and conditions such as a minimum lock-in period, regulatory impositions and exit terms. The project might also currently be in a phase of planning recast of business, which poses a challenge for PE exit. While PEs exited from some port investments via the IPO mode, the IPO market currently may not be able to offer the valuations expected by the PEs,” added Ghosh.

Also read:

Cargill unit Black River spins off food & farm-focussed private equity firm

AMG acquires stake in Baring Private Equity Asia

Hong-Kong based private equity firm PAG Asia Capital raises $3.66b for second buyout fund

This article was first published on Livemint.com

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.