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The demerger route to growth

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Essar Shipping Ports & Logistics Ltd’s successful demerger has created two separate entities: Essar Ports Ltd and Essar Shipping Ltd.

August 17, 2011 Bookmark and Share  
Essar Shipping Ports & Logistics Ltd (ESPLL) has successfully completed the demerger process that was initiated in August 2010. Completed on 9 May 2011, the demerger has created two separate entities: Essar Ports Ltd and Essar Shipping Ltd. Essar Ports has started trading on the NSE and the BSE, and Essar Shipping will list in July 2011.
On restructuring

ESPLL’s share capital has been split in a ratio of 2:1. For every three shares held of ESPLL, shareholders have received two shares of Essar Ports Ltd and one share of Essar Shipping Ltd. The Essar Ports stock closed at Rs122.1 on the BSE and 126.1 on the NSE, reflecting a market capitalization of around Rs5,000 crore. Mr Rajiv Agarwal will be the Managing Director, Mr KK Sinha will be the CEO and Mr Shailesh Sawa will be the CFO of Essar Ports Ltd.

At the helm
The board of Essar Shipping Ltd has appointed Mr AR Ramakrishnan as managing director. The company will include the Sea Transportation, Oilfield Services and Logistics businesses. Captain Anoop Sharma is the CEO of the Sea Transportation business, Mr Ankur Gupta, the CEO of the Oilfields Services business, Mr Rahul Himatsingka, the CEO of the Logistics business and Mr Vikram Gupta, the CFO of Essar Shipping Limited.

Mr Rajiv Agarwal, Managing Director of Essar Ports, said: “Essar Ports is now the second largest private sector ports company in India with 88MTPA of current capacity, and a target to reach 158MTPA by 2013. We have a clear vision for reaching our capacity expansion target through ongoing and under development projects. We have committed Rs9,300 crore towards this business, of which Rs6,150 crore has already been invested.”

A study in excellence
Essar Ports, the second-largest private sector port company in India, operates two important ports — Hazira and Vadinar — in Gujarat. The Hazira port is a 30-million ton, all-weather deep-draft port for import of iron ore, pellets, coal, limestone and export of finished steel products. The Vadinar port is a 58-million ton port and terminal facility that provides handling, storage and terminalling services for crude oil and petroleum products to refineries and traders.
On key business priorities

Essar Shipping owns a diversified fleet of 26 vessels including VLCCs, capesizes, supramaxes, mini bulk carriers and tugs. Essar Shipping provides crude oil and dry bulk transportation services and has more than 220 ship years of service to leading Indian and global oil majors and commodity traders. The company also provides end-to-end logistics services – from ships to ports, lighterage services to plants, intra-plant logistics and dispatching finished products to the final customer. Essar Shipping’s logistics division manages a fleet of 5,000 trucks for inland transportation of steel and petroleum products and owns transhipment assets to provide lighterage support services, and onshore and offshore logistics services. The company’s oilfields services owns a fleet of 13 rigs, including one semi submersible rig and 12 onshore rigs, and provides contract drilling and related services to oil and gas companies worldwide.

Revenues and share capital
In FY 2010-11, ports contributed revenues of Rs732 crore, with utilization at 40 million tons, and EBITDA of Rs534 crore. With plans of commissioning the Paradip 1 (CQ3) project later this year, Essar Ports’ average realization should improve further to around Rs220 per ton. EBITDA margins are expected to continue being around 75 per cent levels, which is amongst the highest in the industry. Most of the current capacity and a sizeable portion of the proposed capacity are backed by long-term take or pay contracts, which ensure sustained capacity utilization, and very good visibility on future earnings.

With ESPLL successfully demerging and trading as Essar Ports Ltd, the share capital of the company has therefore reduced from 61.5 crore shares to 41 crore shares. This reduced share capital has now started reflecting in the share price based on the market cap that will be determined by the markets.

In the offing
On future plans
Essar Ports is building a 20-million ton, all-weather deep-draft port and jetty for the import of iron ore, pellets, coal, limestone and export of finished steel products in Hazira and a 20-million ton integrated terminal facility for handling coal and pet coke used in power plants in Salaya, both in Gujarat.
In Paradip, Orissa, the company is executing a 14-million ton deep draught coal berth as part of an agreement with the Paradip Port Trust to execute a BOT (build-operate-transfer) project, with rights to operate the berth for 30 years. Additionally, a 16-million ton mechanization terminal will be established as a part of a 10-year license agreement with the Paradip Port Trust for the export of iron ore and pellets.

Essar Shipping’s Sea Transportation business has 12 new ships on order, including six minicapes (105,000 dwt each) and six Supramax dry bulk carriers (54,000 dwt each) which are expected to join the fleet in a phased manner by FY2013. The Oilfields Services has ordered two new Jack Up rigs, which are expected by FY2013.

The successful demerger of ESPLL into the two entities — Essar Ports and Essar Shipping — will enable the companies to leverage their synergies and emerge as leaders in their respective sectors.

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