Policy certainty. Railway circular on land use gives clarity for Concor divestment

The recent circular by the Railways on its land use policy has brought in further clarity and will help take forward the stake sale of Container Corporation of India Ltd (Concor), analysts said.

It is expected that the stake sale of Concor will be carried out this fiscal.

With clarity on the policy, the Centre is all set to move ahead with Concor’s divestment, which holds a 54.8 per cent stake.

The Cabinet Committee on Economic Affairs approved the strategic divestment of Government equity of a 30.8 per cent stake in November 2019, along with the transfer of management control to a strategic buyer. However, prospective buyers sought clarity on issues such as land licensing fees and changes in land use policy, delaying the stake sale process.

Policy enabler

The railways has clarified the definition of land’s market value to compute land license fee and provided clarity on possible concession extension, said a recent research report by Nomura.

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“In case, the existing leaseholder chooses to remain in the old regime, the LLF will be computed at six per cent of market value of land (based on circle rate) with seven per cent annual escalation. The tenure of such lease is also confirmed as 35 years as there were initial doubts among investors if the tenure will be for five years or for 35 years. Thus, we are now reasonably certain about the long duration of residual lease for CCRI (Concor),” Nomura said.

Further, the new regime’s annual escalation factor has now been defined at six per cent per annum. The earlier policy announcement was silent on the escalation factor. “This is slightly favourably compared to the seven per cent escalation factor for existing assets, in our view,” it further said.

The agency said that these clarifications are a step towards providing policy certainty. “We view this as a positive step towards strategic stake sale and factor in synergies in our valuation,” Nomura said, adding that the only clarification still pending is the bid parameter for awarding terminals under the new policy.

Centrum Broking also believes that the long-term clarity on LLF charges paves the way for divestment.

“This circular crystallises Concor’s LLF charges for 35 years and is an enabler for the proposed divestment of the company,” it said in a note.

However, it said that migration to the new LLF policy (1.5 per cent of the market value of land and six per cent inflation with existing terminals being subject to a competitive bidding process) is not an option that Concor would be interested in.

“A structural and positive change in Indian Railways’ approach towards freight, DFC-led growth resurgence for rail movement of containers and robust outlook for domestic business support the stock’s premium valuations,” it further said.

The Union Cabinet had on September 7 approved a policy on long-term leasing of railways land for implementing PM Gati Shakti’s framework. Following that, the Railway Ministry earlier this month issued a detailed circular on land management policy with a new leasing policy under which even existing players can get a 35-year tenure.

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