Marg sells 11% in port unit to Ascent Capital for Rs 200 cr

Marg, a Chennai-based construction company, has raised Rs 200 crore private equity money for the ports subsidiary, Karaikal Port. The company’s share price rose 2.5 percent while the broader market index BSE 500 shed 1 percent value. Over the past two weeks, Marg shares gained 21.8 percent while BSE 500 barely rose during the same period.

Ascent Capital will acquire equity shares worth Rs 150 crore from the promoters Marg through a secondary deal and invest the remaining Rs 50 crore through compulsory convertible preference shares (CCPS), according to a stock exchange announcement made by the company.

The money will be used for expansion of its southeast India-based seaport.

As of March 31, 2011, MARG held 95 percent stake in Karaikal Port, a report on VCCircle.com said.

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The deal values the Karaikal Port project at Rs 1,330 crore on a pre-money basis, which means Ascent has acquired 11.2 percent stake that will increase to around 14.5 percent when the CCPS will be converted into equity shares, as per VCCircle estimates.

This is a significant value unlocking for Marg which has a market cap of Rs 344 crore.

Ascent has already completed the first tranche of its investment by purchasing Rs 125 crore worth of equity shares of Karaikal Port from MARG and investing another Rs 32 crore by subscribing to CCPS.

Located in the Union Territory of Pondicherry, Karaikal is a deep water port, around 320 km from Chennai port. The port, when fully developed, is envisaged to have a total of nine berths, capable of handling up to 47 MPTA.

The port is being developed over three phases, with the final phase getting operational by 2016. The first phase, which is currently operational, includes two berths - one each for coal and general cargo. Phase II is currently under implementation and it involves a capex of Rs 1,570 crore. Phase 2A will be operational by October 2011 and will increase the port’s capacity to 21 MMTPA, the announcement said.

The money raised through CCPS will be utilised to enhance the port’s capacity from the already planned expansion of 21 MMTPA to 28 MMTPA. It also involves an additional capital expansion of Rs 600 crore.

Last year, IDFC Project Equity had invested Rs 150 crore in Karaikal Port, the firm’s first investment in this space that came through the India Infrastructure Fund.

The Planning Commission of India estimates that the port sector requires around $20 billion in investment over the next five years.

Indian ports have been steadily attracting investor interest and several PE firms have already invested in this space, according to VCCircle.com. However, project equity investment is different as it has lower risks and stable predictable returns.

The 3i Group, which manages a $1.2 million India-focused infrastructure fund, has invested around $161 million in Krishnapatnam Port Company Ltd and another $50 million in Mundra Port and Special Economic Zone. Gujarat Pipavav Port has also raised funds from a number of investors, including IDFC Private Equity, IL&FS and NYLIM Jacob Ballas.

Another player who has raised money is Gangavaram Port Ltd; it got $35 million from Warburg Pincus.