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'M & A in ports: The next big thing'

The next set of merger and acquisitions are expected in the Indian port sector despite the recent rise in cost of purchasing terminals, according to a study.

business Updated: Apr 27, 2008 13:57 IST

The next set of merger and acquisitions are expected in the Indian port sector despite the recent rise in cost of purchasing terminals, according to a study. "Ports are increasingly attracting the interest of investors. The merger and acquisitions trend in port have hit India, too," Ernst and Young said in a study.

One of the main reasons why there would be an increase in M&A activities in this sector is that investors feel that port offers a steady source of income, it found.

Financial investors, especially with a long-term horizon, like port assets because these assets tend to generate steady cash flows and high margins.

"Mature ports such as Hong Kong, Singapore or Los Angeles provide a steady income stream while ports in the emerging markets of China, India and Eastern Europe have strong potential for growth," it pointed out.

The investors, who are expected to invest in ports, are banks, private equity funds and pension funds. In recent times, the Indian port sector has witnessed at least three mergers and acquisitions.

Reliance Logistics Investment promoted by Mukesh Ambani bought a majority stake of 51 per cent in Rewas Port in 2006 from Amma Lines promoted by Meka Vijay Papa Rao.

This port is expected to play a crucial role for the Reliance group's two mega special economic zones that are being planned in Navi Mumbai.

In 2007, private equity firm Global Infrastructure Partners acquired a 25 per cent stake in Chennai Container Terminal, which is the leading container terminal on India's east coast and second largest private container terminal in India overall by traffic volume.

In 2008, PSA acquired a 49 per cent stake in ABG Kandla Container Terminal from Mumbai-based ABG Infralogistics. The Kandla terminal handles 1.65 lakh twenty-foot equivalent units last year. PSA had purchased a 49 per cent stake in ABG Kolkata Container Terminal for Rs 50 crore.