Allcargo sale of 10.4 % stake to help expansion

Chennai: Allcargo Global’s sale of 10.4 per cent stake to Blackstone Group LP, a global buyout fund, for a consideration of Rs 242 crore appears to fit in well with the company’s previously laid-out expansion plans.

Established in the business of providing logistics services through its presence in multi-modal transport, container freight station and inland container depots, Allcargo stands to benefit considerably from this stake sale.

Funding expansion:

With aggressive capex plans on the anvil, Allcargo may utilise the proceeds from the stake sale to fund its capacity expansion. The management has suggested an investment of up to Rs 100 crore for the purchase of cranes with differing capacity (it had recently merged the project and equipment business of Transindia Freight Services with itself).

This increase in fleet size may help Allcargo scale up revenues, given the dearth of high-capacity cranes in the country. Further, with very few established players in the organised market for cranes, the proposed addition to its product portfolio may also help expand margins.

Part of the proceeds will also be used for setting up of Inland Container Depots (ICDs) and Container freight stations (CFS) across the country. Apart from its presence in JNPT (Mumbai), Allcargo’s Chennai and Mundra CFSs, which commenced operations in May 2007, may be in for a second phase of expansion.

Notably, it plans to increase Chennai CFS’ annual capacity from 50,000 tonnes to 85,000 tonnes. This apart, Allcargo also plans to set up ICDs across other cities — Hosur (Bangalore), Hyderabad, Ahmedabad, Nagpur, Goa and Prithampur (near Indore).

Funding these expansions through a stake sale (which is in the form of convertible debentures and warrants) may also mean a lower recourse to pure debt for expansion plans. Given Blackstone’s expertise in managing companies, Allcargo may also benefit by way of a board representation from the latter.

Deal details:

This stake sale will require Blackstone to buy 1.08 million Allcargo debentures worth about Rs 100 crore. These can be converted into the same number of shares at Rs 934 apiece on completion of 18 months from the date of issue. This apart, Blackstone will also buy 1.5 million Allcargo warrants at Rs 194 each, which can also be converted into stock after 18 months at a price ranging from Rs 934 to Rs 1,284 each. While Blackstone will currently pick up only 10.4 per cent stake in Allcargo, it has an option to increase its stake to 14.94 per cent through the secondary market.