Dighi port buy: Did Adani bite off more than it can chew?

Unlike its other port acquisitions, turning around Dighi port will pose the stiffest challenge yet to Adani Ports and Special Economic Zone Ltd (APSEZ). The company last week won approval from the Mumbai Bench of the National Company Law Tribunal (NCLT) to acquire the debt-laden port for ₹650 crore.

APSEZ’s resolution plan includes a settlement of unpaid dues of ₹11.38 crore to the Maharashtra Maritime Board, the agency tasked with developing and regulating ports in the western State.

With the acquisition of Dighi port, APSEZ has expanded its presence to eight of the nine Indian coastal States. The only coastal State where it does not have a presence is West Bengal.

The NLCT approved the resolution plan for Dighi, submitted by APSEZ, India’s biggest private port operating firm, on March 5. APSEZ will pay ₹650 crore upfront to a consortium of 16 banks led by Bank of India, a 78.7 per cent haircut to the ₹3,056.96 crore that Dighi port owes these financial creditors, making it one of the cheapest deals in the ports sector.

Did APSEZ over-pay?

Yet, there is a view among port industry experts that APSEZ has paid at least ₹200 crore more for Dighi port at a time when the coronavirus outbreak is tripping global trade with no signs of easing up, and with the potential to hit cargo volumes.

The liquidation value set by the valuers for Dighi port was ₹356.30 crore.

The acquisition price should, however, be seen in the context of Dighi’s present capacity, with the depth to handle only 40,000-tonne ships. The biggest challenge in turning around the port is its lack of depth and back-up rail and road connectivity to evacuate cargo.

“It would be an uphill task for APSEZ to turn around Dighi port considering significant rail, road connectivity and dredging challenges coupled with a downward global and Indian trade cycle across coal, steel and liquid cargo due to the coronavirus,” said Ramesh Singhal, Director, i-maritime Consultancy Pvt Ltd.

“But, if there is any port company in the world that has the capability to turn around Dighi port, it is APSEZ. It would be interesting to see what happens in the future as this port acquisition would be APSEZ’s first in Maharashtra,” he added.

Viable mid-sized port

While APSEZ owner Gautam Adani has always aimed at running bigger ports, Dighi can be turned around into a mid-sized port if it can get 8-10 mt of cargo such as coal, liquids and steel with a cluster of warehouses and industries coming up in the vicinity. For this, APSEZ may have to spend another ₹3,000 crore to dig the port’s channel deeper and address road and rail connectivity infrastructure.

The task of increasing the depth may be relatively easier for APSEZ given that it has an in-house dredging company, but the rail and road connectivity would be a time-consuming affair, as this calls for collaboration with other stakeholders such as Indian Railways and the National Highways Authority of India.

The turnaround, though, could be marred by scepticism arising from the fallout of the coronavirus outbreak on trade, and externalities such as pollution and climate change concerns surrounding coal-based power plants.

And, with power from renewable energy sources more or less coming on par with coal-based power plants, and expected to become even cheaper due to technological innovations, it could pose a question mark on the future of existing coal-fired power stations as well as new ones that Dighi is expected to serve. If that happens, it could hurt Dighi’s potential to handle coal, its mainstay cargo.

Dighi is located just a few kilometres away from Jawaharlal Nehru Port Trust (JNPT), India’s biggest container port. Hence, developing a deep-draft container terminal may not be “justifiable”.

“It is difficult to turn around Dighi, but it is possible given APSEZ’s successful track record of turning around acquisitions,” said another port consultant.