Kamarajar Port picks Axis Bank to raise low cost dollar denominated loan to fund expansion

Posted by Daily Shipping Times on 24-07-2017        Tweet

CHENNAI: Kamarajar Port, the only Central Government-owned port that is run as a company, will raise $100 million from Axis Bank to part-fund a Rs.1,220-crore expansion of the port located at Ennore near Chennai, as State-run harbours size up benefits of low-cost dollar loans to cut financing costs and stay competitive.

Kamarajar Port Chairman and Managing Director MA Bhaskarachar said the port has picked Axis Bank for raising the dollar loan after it quoted the lowest interest rate of 3.15 per cent from among two other lenders — Kotak Mahindra Bank and HDFC Bank — in a tender.

The all-inclusive rate quotation of about 3.15 per cent (six months LIBOR, plus 195 basis points) submitted by Axis Bank for the loan was approved by the board of Kamarajar Port, he said.

The loan has a tenure of five years, including a moratorium period of one year from the date of the first disbursement.

Kamarajar will utilise the loan to construct a new coal-loading berth for Tamil Nadu Government-run power utility TANGEDCO, a new general cargo berth, a new automobile export terminal with a capacity to handle 300,000 cars, as well as for increasing the depth to handle bigger ships.

Kamarajar has become the second Central Government Port to raise a dollar loan, in the past few months after Shipping Minister Nitin Gadkari urged them to go for low-cost foreign currency borrowings by leveraging their dollar-denominated foreign currency earnings, which provided a natural hedge to the ports.

This will substantially eliminate the requirement of hedging the foreign exchange risk and will reduce the cost of borrowing.

Vessel-related charges or so-called marine charges, such as port dues, berth hire and pilotage, are paid by ships calling at a port. Vessel-related charges for foreign-going vessels are denominated in dollars, but collected in rupees, after applying the prevailing exchange rate, according to a practice followed since 1991.

Whereas, cargo-related charges at ports, such as wharfage, crane hire, storage, warehouse, demurrage and estate rentals, are denominated and collected in rupees.

Gadkari reckons the dozen ports can use their dollar earnings to borrow money at cheaper interest rates of 3-5 per cent from overseas, instead of high-cost rupee loans with interest rates of 8-12 per cent from the domestic market.

In August 2016, Jawaharlal Nehru Port Trust, which runs India’s biggest container port, near Mumbai, signed a deal with a consortium of State Bank of India and Development Bank of Singapore to raise a dollar loan of $400 million to help fund a road-widening project linking the port, for faster evacuation of cargo.

Like Kamarajar, the dollar loan of JN Port carried an interest rate of about 3.15 per cent.

On 30 June, the Board of Trustees of Kandla Port Trust cleared a proposal to raise dollar loans to help fund expansion plans.

Port projects, including connectivity projects, are critical for developing cargo-handling capacity. With the thrust on port-led development under the Sagarmala programme for port modernisation, improving viability of projects is critical. One of the primary factors that impacts viability is the interest rate on borrowings to fund projects. While ports have surplus funds, they also need to borrow to achieve a quantum jump in the investment, Gadkari said in June.

Dollar loans opens up an avenue for so-called Major Ports or those owned by the Centre, to access long-term, low-cost funds from international markets for their requirements, he added.