Building equity using the integrity screen
On its silver jubilee, the men behind Quantum Advisors introspect on the value of investing.
Sical Logistics Ltd — a Coffee Day Group company that runs port terminals and container freight stations — is likely to see bidding by JSW Group and Adani Group, sources close to the development told BusinessLine.
The Dubai government-owned DP World, a container major , too, has shown interest, the sources said.
While the mandate to sell majority of Coffee Day group assets was given to IDFC Securities, the mandate for finding a buyer for Sical went to ICICI Securities. It is learnt that the bidders have even entered into a non-disclosure agreement.
Sical Logistics could be a perfect fit for Adani Ports and Special Economic Zone Ltd (APSEZ), India’s biggest private port operator and Sajjan Jindal-led JSW Infrastructure Ltd due to the logistic company’s presence in areas where they are also operating and looking to expand.
A right deal?
However, potential bidders could be apprehensive about a couple of issues at Sical.
The company’s two key port terminals are operating at Central government-owned major ports where the rates are regulated. Moreover, the revenue share that Sical is contractually-mandated to pay the government ports is steep, making it an unviable proposition for anyone buying the assets.
A high revenue share crimps the terminal’s ability to service the debt and earn a decent return on capital.
For instance, Sical Iron Ore Terminals Ltd, the entity that was awarded the contract to build and operate a 12-million tonne (mt) capacity iron ore terminal at Kamarajar Port in 2006 but was subsequently converted into a coal handling facility in 2016, due to the ban on export of iron ore from Karnataka, has to share 54.5 per cent of its gross revenues with the government-owned port authority. Sical has a 74 per cent stake in the venture. A consortium led by YES Bank Ltd has loaned ₹600 crore to the terminal.
Sical’s iron ore terminal at New Mangalore Port Trust, which it won in 2009 by quoting a revenue share of 37 per cent, was terminated by the firm citing force majeure arising from the ban on export of the steel-making commodity from Karnataka, rendering the facility idle. But, it is still shown in the books.
PSA-Sical Terminals Ltd, the entity that runs the country’s oldest PPP container terminal at VOC Port Trust in Thoothukudi, Tamil Nadu, is beset by tariff woes since 2002 and has the reputation of being the most litigated PPP terminal.
Besides, the terminal where Singapore’s PSA holds a 51 per cent stake and Sical 49 per cent, effectively pays more than 80 per cent of its revenues as royalty to VOC Port Trust. It handles close to 500,000 TEUs a year.
If Sical decides to divest its 49 per cent stake in the terminal, PSA has the first right of refusal on the shares.
Other areas of interest
Sical also has a category 1 license from the Indian Railways that permits it to run container trains across India.
Apart from port terminals and container train operations, Sical has interests in mining, road transport, inland container depot, warehousing and shipping. It also provides offshore support services to the oil and gas industry and owns and operates a cutter suction dredger.
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