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Adani Ports and Special Economic Zone Ltd (APSEZ) has closed the deal to buy a 75 per cent stake in Krishnapatnam Port Co Ltd (KPCL) at a discount of 38.9 per cent, or ₹2,145 crore lower, than the equity value assessed.
On January 3, APSEZ had agreed to acquire a 75 per cent stake in KPCL for an enterprise value of ₹13,572 crore, calculated at 10.2 times the FY19 EBITDA of ₹1,330 crore.
The equity portion of the Krishnapatnam deal (excluding the debt of ₹6,212 crore held by the port operating company) was then valued at ₹7,360 crore, of which 75 per cent stake translated to ₹5,520 crore.
But the deal was closed on Monday at an enterprise value of ₹12,000 crore, re-worked at 10 times the expected FY21 EBITDA of around ₹1,200 crore. After factoring in the net liabilities, including external debt of ₹7,500 crore, the total equity value was ₹4,500 crore, and APSEZ paid ₹3,375 crores for a 75 per cent stake, the company said.
This translated to a 38.9 per cent reduction in the equity value or ₹2,145 crore less than the previously assessed ₹5,520 crore for the same 75 per cent stake.
“The 75 per cent stake, which was to be acquired for ₹5,520 crore, has now been bought for ₹3,375 crore,” said a banking industry source.
Covid effect on the deal
In May, BusinessLine reported, citing a top company official, that APSEZ may look at “re-negotiating the price” for acquiring the stake in KPCL, as economic conditions had changed dramatically by the Covid pandemic since the deal was announced in January.
Interestingly, in January, the enterprise value was pegged at ₹13,572 crore, or 10.2 times the FY19 EBITDA of ₹1,330 crore, which has since been re-stated at ₹1,214 crore. The deal was finally closed at 10 times the expected FY21 EBITDA of about ₹1,200 crore and not at the FY20 EBITDA of ₹1,179 crore.
APSEZ hopes to recover the equity investment in less than four years with the return on capital employed (ROCE) touching 17 per cent by FY23.
The debt has been refinanced and replaced by proceeds from the dollar bond issue.
Krishnapatnam is the 12th port in APSEZ’s portfolio, helping it raise the market share in India to 25 per cent from 21 per cent. APSEZ plans to turn Krishnapatnam into a “Mundra on the East Coast”. Mundra in Gujarat is the flagship port of APSEZ and India’s biggest commercial port.
The Krishnapatnam port concession ends in March 2059. APSEZ is contractually mandated to pay a revenue share of 2.6 per cent to the Andhra Pradesh government till February 2039; 5.2 per cent between March 2039 and February 2049, and 10.4 per cent between March 2049 and February 2059.
The port, located 180 km north of Chennai, has a depth of 18.5 metres with a capacity to handle 64 million tonnes (mt) of cargo from 13 berths. The cargo handling capacity can be scaled up to 250 mt a year, according to the master plan.
With the large land bank, Krishnapatnam has “high potential to scale up to 500 mt”, APSEZ said.
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