Adani Ports and Special Economic Zone Ltd (APSEZ) said on Wednesday it has received approval from the Andhra Pradesh government to buy the state government’s 10.4 per cent stake in Gangavaram Port Ltd (GPL) at Rs 120 a share for Rs 644.78 crore.

BusinessLine first reported that the state cabinet had approved the deal on August 7.

APSEZ approached the state government with a proposal to buy its 5,37,31,700 shares (10.4 per cent stake) at Rs 120 a share. It also sought merger of GPL with APSEZ, which was approved by the Cabinet on August 7. With this, GPL will be fully owned by APSEZ.

India’s biggest private port operator had earlier acquired 31.5 per cent stake from Windy Lakeside Investment Ltd (an affiliate of US private equity firm Warburg Pincus LLC) and the 58.1 per cent stake held by D. V. S. Raju and family, the promoters of Gangavaram Port, both for Rs 120 per share.

After the merger, APSEZ will form a new special purpose company to sign a fresh concession agreement with the AP government and run the port for the balance period of the concession ending in 2059.

The merger of GPL with APSEZ took the port industry by surprise as Adani has never done this with the port operating companies it has acquired since 2014.

Karan Adani, CEO, APSEZ, told analysts after the firm’s first quarter results on August 3 that the merger of GPL with APSEZ has been proposed “mainly for tax reasons” unlike its other recent acquisitions where the acquired port operating company was not merged with APSEZ.

Windy Lakeside Investment has already been issued shares in APSEZ as consideration for the shares it sold in Gangavaram Port Ltd to Adani. D. V. S. Raju and family will be issued shares in APSEZ for the shares it sold in GPL.

“The merger is to give a tax efficient share swap; that’s the only reason for the merger,” Karan Adani stated.

The AP government’s stake is being bought in cash.

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The deal, according to sources, is bound to come under scrutiny because of the absence of a price discovery mechanism to extract the highest value for the shares by following the Central Government’s disinvestment guidelines as the State lacked a policy on its own in this regard.

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“It appears that due process was not followed by the six-member Empowered Group of Secretaries formed to oversee the stake sale, which merely accepted the Rs 120 a share proposed by APSEZ and recommended it to the A P cabinet for approval,” said a source familiar with the matter.

“This is likely to create a problem,” he added.

The AP government, meanwhile, has issued an order not to put up government orders on its website to check court cases from being filed on the basis of these orders, a government source said.

“This is being done to prevent the public from accessing the government’s decisions and from knowing how the decisions were arrived at,” the source said.