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
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.
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.