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10 Million Tonne Break-even Point for Vizhinjam

The Vizhinjam project was taken up by Adani to develop a transshipment port equipped to handle multi-purpose and ‘break bulk’ cargo

Published: 04th December 2015 03:00 AM  |   Last Updated: 04th December 2015 03:14 AM   |  A+A-

KOCHI: With work on the Vizhinjam International Seaport project set to begin on Saturday amid huge expectations, Adani Ports, which will operate the port, has toned down the hype saying the port would need to handle ten million tonne of cargo to reach break-even.

In shipping terms, ten million tonne of cargo is equivalent to about 8.5-9 lakh TEUs (twenty foot equivalent unit). To get a comparison, the DP World-controlled Vallarpadam Transshipment Terminal handled 3.68 lakh TEUs in 2014-15, the eighth year since work on the project began in 2007 and fourth year since its commissioning in 2011. 

The break-even figure was outlined by the management of Adani Ports and Special Economic Zone Limited to analysts of Kotak Institutional Equities, a leading stockbroking firm. The management revealed that the Vizhinjam Port was part of Adani’s strategy to expand its share of container cargo.

“The project (Vizhinjam Port) was taken up by Adani from the strategic perspective to develop a transshipment port equipped to handle multi-purpose and ‘break bulk’ cargo (goods that must be loaded individually) in future. At present, nearly one million TEUs of Indian cargo is transshipped through foreign ports, including Colombo. Development of the Vizhinjam Port will help Indian traders save cost by transshipping containers at lower costs,” said a statement from Kotak, a copy of which is with ‘Express’.

Kotak said the concession agreement of the port would allow Adani Ports to handle cargo for a period of 40 years ending in April 2056. The port will not be paying royalty in the initial years. From FY2034, the royalty will increase by one per cent of the gross income every year. The capital expenditure of Rs 4,100 crore for the Vizhinjam Port is phased out over the next 4-5 years, which will be funded by a combination of Rs 1,600 crore of grant, Rs 900 crore of equity and about Rs 1,700 crore of debt.

The funds will be used to set up a berth of 1.2 million TEUs annual capacity, and to construct common infrastructure (shore protection, basin, approach channel and  evacuation gateway).  “At the current financing structure and lower realisation (large share of transshipment volumes), the port may require to achieve ten million tonne of cargo to reach PAT (profits after tax) break-even,” said Kotak. Vizhinjam Port Capex will involve US$160 million of foreign debt, which the company aims to raise at a modest premium to the international rates in London market (LIBOR).

“For Adani Ports, bulk cargo accounts for nearly 58 per cent of its consolidated traffic. A significant share of its bulk cargo is coal imports. Through Vizhinham, Adani Ports may also be looking to import coal from Australia to power projects in Tamil Nadu,” said an industry official.

strategy to expand cargo

The break-even figure was outlined by the management of Adani Ports and Special Economic Zone Limited to analysts of Kotak Institutional Equities, a leading stockbroking firm. The management revealed that the Vizhinjam Port was part of Adani’s strategy to expand its share of container cargo.



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