Adani-MSC Vizhinjam port deal controversy | Explained
The story so far: The move by Adani Ports and Special Economic Zone Limited (APSEZ) to divest its 49% stake in Adani Vizhinjam Port Private
The story so far: The move by Adani Ports and Special Economic Zone Limited (APSEZ) to divest its 49% stake in Adani Vizhinjam Port Private Limited (AVPPL) – the concessionaire and operating company for the Vizhinjam International Seaport in Kerala – to Switzerland-based Mediterranean Shipping Company (MSC) Group has courted controversy, with the Kerala government officially conveying its displeasure to APSEZ on being kept in the dark about the development. An empowered committee headed by the State Chief Secretary is now reviewing the proposal. Did the Adani Group not follow the procedure in the proposed move to sell its stake to a foreign entity? The Vizhinjam International Transhipment Deepwater Multipurpose Seaport has been developed by the Kerala government under the landlord port model with a Public-Private Partnership (PPP) component on a Design, Build, Finance, Operate and Transfer (DBFOT) basis in partnership with a private partner, the concessionaire AVPPL. A concession agreement was signed in August 2015 for the construction of the port. As per the clauses in the concession agreement, Adani Ports must retain a shareholding of at least 51% during the construction period and the first year of commercial operations. Beyond the first year, it has to maintain a minimum shareholding of 26%. Further, the agreement makes it clear that the transfer of shares requires the State government’s prior approval. According to the Adani Group, the Vizhinjam port is now in its second year of operations, allowing it to dilute up to 74% of its stake.
The proposed dilution is only to the extent of 49%, and the process is expected to take three to six months to complete. However, the agreement also stipulates that any change in ownership can be made only with the prior permission of the State government. This provision was not honoured when the preliminary understanding was reached between Adani and MSC, according to the State government and the Opposition. Does the proposed share transfer raise any other concerns? First of all, prior approval of the State government is required for any transfer of more than 25% of the shares. The latest move could create a monopoly for a single shipping company at the port, forcing exporters to rely primarily on that company’s vessels and the freight rates it determines. Although competitiveness is the cornerstone of any market, this could be undermined by the proposed stake transfer, the Opposition Leader Pinarayi Vijayan contended. Further, national security interests must also be taken into account when the ownership of the Vizhinjam port, a highly critical piece of infrastructure, is subjected to a change. What does Adani have to say about this? AVPPL is a listed company, and the proposed deal is subject to customary approvals, including regulatory clearances. The company is first required to comply with the stock exchange disclosure requirements under the Securities and Exchange Board of India (SEBI) Listing Regulations. As a listed company, it must disclose the proposed transaction to the stock exchanges under SEBI regulations.
The BriefWire