Mumbai-listed Shreyas Shipping & Logistics Ltd, the Indian flagged vessel owning unit of Dubai’s Transworld Group, has struck a unique and mutually beneficial vessel chartering agreement with Transworld Feeders Pvt Ltd, a proposed subsidiary of the Unifeeder Group which will acquire the container vessel operating business of Shreyas as part of a global deal announced on August 19.
Unifeeder Group is a unit of Dubai-based global port operator D P World Ltd.
DP World, through Unifeeder, will also be acquiring the shares of Avana Logistek Limited from Transworld and Shreyas.
The ship chartering deal
In consideration for the sale of its interests, Shreyas will receive cash of about Rs208 crores subject to customary adjustments for net debt and working capital. Shreyas will also retain all its fixed assets, including its vessels worth at least Rs 400 crores.
Following the deal, Shreyas will be left with the container ship owning division and bulk cargo ship operations.
Faced with the prospect of operating in a market that is becoming intensely competitive, Shreyas appears to have navigated a solution which removes the risk of this threat and the potential value erosion for its shareholders, while retaining exposure to a bigger entity which will enjoy scale benefits, and could provide significant upside for Shreyas and its shareholders in the medium to long-term.
Shreyas has secured a long-term container ship chartering arrangement with a tenure significantly longer than the typical market standard. This will also enable Shreyas to indirectly participate in the upside of the growth in the coastal trade market as its charter pay-outs will be performance linked to the earnings of Transworld Feeders. Given the significantly higher volumes handled by Unifeeder and its access to a global network through its parent DP World, it is expected that the businesses will benefit from revenue growth and cost synergies.
Shreyas will also have a ‘Right of First Refusal’ provision which will ensure it is never unfairly disadvantaged. The framework chartering agreement with Unifeeder is also non-exclusive, which means that Shreyas reserves the right to charter vessels to third parties who can offer terms more beneficial to the Company.
“Post-transaction, Shreyas will charter vessels to Unifeeder which is a bigger and more creditworthy customer for the long-term. Unifeeder’s expertise and scale, combined with DP World’s extensive network, will bring earnings stability to Shreyas while at the same time retaining the potential to share in the future growth of Indian coastal trade,” V K Singh, Managing Director, Shreyas Shipping told BusinessLine.
“The charter income and profitability of Shreyas will grow in-line with the growth in the operating company’s revenue and profitability. Unifeeder expects to grow the operating revenue over the medium and longer term on the back of significantly higher volume of the combined businesses” Singh stated.
The deal maximises value to Shreyas Shipping shareholders.
“This is a unique opportunity for the Company to release capital, de-risk the remaining business and deliver stability by partnering with a leading global operator during a challenging business environment that has seen a few transactions collapse within the logistics sector,” Singh observed. Against this backdrop, the Company has successfully managed to secure an attractive valuation, which is at a significant premium to Company’s current market valuation, he said.
“Another key benefit is that the Company will utilize the proceeds from the sale to repay some of its debt and replace old vessels with newer, more efficient vessels. This will further improve the Company’s cash flows and debt equity ratio”, he added.
“Overall, it’s a value maximization solution with attractive valuation upfront and a de-risked business model in the long term,” Singh asserted.