The diplomatic standoff between the UAE and Qatar has put IL&FS’s Middle East-based maritime infrastructure operations on slippery grounds. The infrastructure finance company is exploring a sale of its oil storage terminal located in the emirate of Fujairah. The terminal provides storage facilities for oil and petrochemical products originating from energy giant BP’s facilities in Qatar.
The terminal has a storage capacity of 600,000 cubic meters and was in the process of expanding its capacity further but has now been tagged as a “non-core” asset, people directly familiar with the matter said.
The proposed sale could attract interest from Abu Dhabi state-owned investment company Mubadala and global ports and terminals operator DP World as well as certain infrastructure-focused private equity funds.
The terminal’s operations have suffered after the UAE imposed a blockade on vessels originating from Qatar preventing them from offloading supplies at the port of Fujairah. The blockade is among a series of measures that UAE, Saudi Arabia, Egypt and Bahrain have taken after they severed diplomatic ties with Qatar on charges that the gas-rich state was sponsoring terrorism and increasing its proximity with Iran.
IL&FS expects the terminal to fetch a price of Rs 1000 crore. The terminal is owned by IL&FS Maritime Infrastructure, a wholly owned subsidiary of the company.
Saibal De, IL&FS Maritime Infrastructure’s CEO, declined comment when contacted by ET. Almost 90% of the terminal’s current capacity is allocated for storage of BP’s supplies and a buyer will likely have to negotiate new contracts or wait for restrictions to ease once normal diplomatic relations between the feuding states resume.
“There are concerns about political stability in the middle east region. The risk is considered much higher as the diplomatic standoff has continued for months. This is already impacting interest rates and bank lending rates for assets are moving up due to the perception of heightened country risk”, said Abhishek Poddar, Partner, Asia Pacific at AT Kearney.
The initial phase of the terminal’s construction was funded by a loan from a consortium of four banks including ICICI Bank, EXIM Bank, Bank of Baroda and National Bank of Fujairah. The disruption in the terminal’s operations could lead to delays in servicing of the $90 million loan, aware of the matter said.
IL&FS has been shedding non-core assets in an effort to trim its balance sheet and reduce debt. It also plans to limit its ownership of infrastructure assets to India.
ET had reported in its edition dated March 22 that it had kickstarted a process to divest its interest in a joint venture with China’s Chongqing Expressway Group, an investment that was made five years ago and marked the first major infrastructure investment by an Indian company in China.
It has also divested its trust and fiduciary services business and sold its derivatives clearing and settlement arm in the past 18 months.
The company reported consolidated revenues of Rs 17,156 crore for the year to March 2017, logging a 14% growth in revenues year-on-year.
IL&FS is a core investment company and has eight operating subsidiaries. Its businesses span development and financing of large-scale urban infrastructure projects. It also has interests in ports, water and waste management as well as an education business.
The company plans to participate in an auction of toll-operate-transfer projects being planned by the National Highways Authority of India.
Its maritime infrastructure arm owns a stake in Dighi Port in the Raigad district of Maharashtra and also has a construction contract to build a port in the Cuddalore district of Tamil Nadu situated near a 3600 MW thermal power project owned by IL&FS.
Source: Economic Times