Mer­ca­tor Plans As­sets Sale to Fund Growth

Ship­ping co in talks to sell coal as­sets in In­done­sia and Mozam­bique and stake in dredg­ing unit to raise $300m

The Economic Times - - Companies: Pursuit Of Profit - In­du­lal.PM@ times­group.com

Mum­bai: Mum­bai-based Mer­ca­tor is look­ing to raise $300 mil­lion, or about .₹ 1,910 crore, by sell­ing its coal as­sets in In­done­sia and Mozam­bique, and sell­ing stake in its dredg­ing di­vi­sion to bulge bracket pri­vate eq­uity funds, to build a war chest for fu­ture growth.

The di­ver­si­fied ma­rine op­er­a­tor is in talks with Cana­dian bil­lion­aire Prem Watsa-pro­moted Fair­fax Fi­nan­cial Hold­ings and US pri­vate eq­uity giants KKR and Black­stone to make a joint bid for state-run Dredg­ing Cor­po­ra­tion of In­dia, in which the gov­ern­ment is look­ing to sell its en­tire 74% stake, mul­ti­ple peo­ple close to the de­vel­op­ment told ET.

Also, In­dian and Chi­nese play­ers are in the fray to buy Mer­ca­tor’s 50% stake in three East Kal­i­man­than coal as­sets in In­done­sia and one as­set in Mozam­bique, they said. “Mer­ca­tor has de­cided to exit the coal busi­ness as it is no longer a core busi­ness to the group,” said one of the sources cited ear­lier. “We ex­pect the trans­ac­tion to get con­cluded within the next two quar­ters.”

Mer­ca­tor ex­pects the di­vest­ment to fetch .₹ 1,200-1,500 crore.

No­mura is help­ing the com­pany sell its coal as­sets, sources said. Mum­bai-based in­vest­ment bank Singhi Ad­vi­sors is run­ning a process for Mer­ca­tor to raise funds for its dredg­ing unit, sources said. Dredg­ing Cor­po­ra­tion of In­dia — for which Mer­ca­tor plans to bid jointly with pri­vate eq­uity ma­jors — is the largest dredg­ing com­pany in the coun­try and the only public sec­tor en­ter­prise in the sec­tor with a fleet of 19 dredgers.

When con­tacted, Mer­ca­tor, KKR, Black­stone and Mer­ca­tor de­clined to com­ment. A mail seek­ing com­ments sent to Fair­fax re­mained unan­swered as of press time on Tues­day. Founded in1983, Mer­ca­tor is a di­ver­si­fied con­glom­er­ate with in­ter­ests in ship­ping, lo­gis­tics, dredg­ing and coal.

DI­VER­SI­FI­CA­TION PANGS

Mer­ca­tor ac­quired coal as­sets in Mozam­bique in 2008-09 and bought In­done­sian as­sets in 2011. It has 50% par­tic­i­pa­tory in­ter­est three coal blocks in In­done­sia’s East Kal­i­man­than re­gion and owns the al­lied in­fra­struc­ture fa­cil­i­ties, while the Mozam­bique as­sets is yet to start com­mer­cial op­er­a­tions. The com­pany, which has been into coal trans­porta­tion since 1995, has de­cided to grad­u­ally step down from coal busi­ness as it was not gen­er­at­ing ex­pected re­turns.

The to­tal coal sales through min­ing and trad­ing dur­ing FY16 stood at 4.8 MMT, a 17% fall from 5.8 MMT in FY15. The re­duc­tion in vol­umes is at­trib­ut­able to the volatile mar­ket con­di­tions in the past fi­nan­cial year. There was a con­tin­u­ous de­crease in the prices of coal, which im­pacted both the top line and the mar­gins of coal. The net sales for the seg­ment stood at .₹ 1,283 crore in FY16 against .₹ 1,535 crore in the pre­vi­ous year.

“The risk-re­ward from In­done­sia was not in favour, while Mozam­bique, we are yet to find a lo­cal part­ner for the de­vel­op­ment of the coal field,” said a com­pany in­sider with di­rect knowl­edge of the process. “We are thinking of sell­ing this to those, who be­lieve coal as a strate­gic as­set. For us, it is no longer a core busi­ness now.”

As part of its re­struc­tur­ing drive, Mer­ca­tor sold its dry bulk ship­ping busi­ness to Sin­ga­pore’s Bellerophon Hold­ings, MIB In­vest­ments and Wro­claw Hold­ings in 2016. Ear­lier this year, it com­pleted the sale of its mo­bile off­shore pro­duc­tion unit to Ori­en­tal Re­sources for around $76 mil­lion.

The as­set sales were tar­geted mostly to­wards re­duc­ing the over­all debt of the group.

Mer­ca­tor, which cur­rently has a net debt of ₹ 1,416.10 crore, plans to en­ter in the Cap­i­tal Dredg­ing seg­ment and is closely track­ing op­por­tu­nity in in­land wa­ter­ways, its web­site showed. The dredg­ing busi­ness gen­er­ated a rev­enue of ₹ 270.8 crore for Mer­ca­tor in 2016-17 and EBITDA of ₹ 75 crore.

The In­dian dredg­ing mar­ket has a limited num­ber of lo­cal play­ers, in­clud­ing DCIL, Mer­ca­tor, Adani Ports and SEZ and Dharti Dredg­ing. Large for­eign dredg­ing com­pa­nies—Van Oord, Jan De Nul, Royal Boskalis and Dredg­ing In­ter­na­tional—are also ac­tive in In­dia.

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