AP govt lifts restriction in concession pact to clear stake sale in Kakinada Gateway Port-Business Journal

The Andhra Pradesh government has allowed GMR SEZ and Port Holding Ltd to acquire 26 per cent stake in Kakinada Gateway Port Ltd (KGPL) and waived off a key clause in the port concession agreement to help Aurobindo Realty and Infrastructure Pvt Ltd buy 74 per cent stake in the port company.

In September 2020, Aurobindo Realty and Infrastructure signed a deal to buy the 51 per cent stake held by GMR SEZ and Port Holding Limited (a wholly-owned unit of GMR Infrastructure Ltd) in Kakinada SEZ Ltd for ₹2,610 crore including sub-debt.

As part of the deal, the 100 per cent equity stake in the planned Kakinada Gateway Port Ltd held by Kakinada SEZ (KSEZ) was also to be transferred to Aurobindo Realty and Infrastructure, according to an announcement from GMR Infrastructure on September 25 last year.

KSEZ is developing a port based multi-product special economic zone at Kakinada in East Godavari district. Kakinada Gateway Port Ltd was awarded a contract by the AP government to set up a greenfield commercial port in Kona Village of East Godavari district.

While the sale of the SEZ unit was approved by the Board of Approvals in the Commerce Ministry, the clearance from the AP government for the related port deal ran into complication after Aurobindo acquired a majority 41.12 per cent stake in the nearby Kakinada Seaports Ltd, violating the concession pact for Kakinada Gateway Port.

The concession agreement bars the developer and operator of Kakinada Gateway Port to acquire control or interest exceeding 25 per cent stake in the operations or services of any other port located within 75 km.

The concession pact also restricted an entity controlling or operating any other port located within 75 km of Kakinada Gateway Port to acquire control or interest exceeding 25 per cent shares in the operations or services of Kakinada Gateway Port.

To facilitate clearance for the port deal from the AP government, KSEZ and Aurobindo proposed to limit the equity of KSEZ in Kakinada Gateway Port to 74 per cent with the balance 26 per cent stake to be held by GMR SEZ and Port Holding Ltd.

The State government sought legal opinion from Justice VN Khare, former Chief Justice of India, who opined that the restriction placed by the concession agreement on cross holding of shares in other ports by the operator of Kakinada Gateway Port or by others in Kakinada Gateway Port was “not an absolute restriction and is subject to waiver by the Authority”.

“Accordingly, it would be well within its right to waive the restriction envisaged under clause 5.9 of the concession agreement so long as such action of the Authority is based on bonafide rationale. An action of the Authority in modifying / amending / waiving the concession agreement would be entirely consistent with the extent of legal requirements and the Constitutional mandate,” Justice Khare opined.

The AP government has decided to “exempt Aurobindo Realty & Infrastructure, which is holding 41.12 per cent shares in Kakinada Seaports Limited and which is now, as a shareholder in KSEZ, proposed to hold 74 per cent in Kakinada Gateway Port Ltd, which is the direct consequence of acquisition of shares in Kakinada SEZ, under proviso of clause 5.9 of concession agreement, with a condition that the target towards investment and employment proposed by Aurobindo should be achieved, failing which the authority is at liberty to take necessary action, by entering into a supplementary agreement to that effect,” R Karikal Valaven, special chief secretary, AP government, wrote in a 10 March order.

The government has also permitted GMR SEZ and Port Holding to acquire 26 per cent equity in Kakinada Gateway Port from KSEZ, he added.