AION talks to Mercator for Rs 450-cr deal

AION Capital Partners, the largest special situation fund in India, launched by global private equity giant Apollo and India's oldest PE fund, ICICI Venture, is in discussions with diversified conglomerate Mercator for an investment worth Rs 420-450 crore ($70-75 million).

According to people in the know, AION will invest through a structured deal, with a combination of equity and debt. Mercator, which expanded its oil and gas business recently by acquiring an LPG carrier from Varun Shipping, will use the fund for further vessel buyouts and clearing its debts.

Mercator, mainly into coal mining, followed by shipping, offshore and dredging, had consolidated debt of Rs 3,500 crore at the end of FY13. After acquiring the vessel from Varun Shipping for about $30 million, Mercator is said to be among the top bidders for acquisition of a second Anchor Handling Tug Supply vessel from Varun. In the December quarter, it posted a net profit of Rs 8.8 crore on a consolidated basis compared with a loss of Rs 340 crore in the same period in the previous year.
 

"Shipping companies engaged in heavy investments in the pre-crisis period on expectations that demand will pick up in the coming years. In the backdrop of the global economy's meltdown, those companies are now not able to service debt, as the revenue stream failed to grow as expected. This is one of the main reasons why shipping companies are debt-trapped," said an analyst with a leading broking house.

Mercator owns coal mines in Indonesia and Mozambique, of which the mines in Indonesia are operational. Coal mining, procurement and logistics contribute a little more than 60 per cent of company revenue. Under its Offshore Oil and Gas Services business, Mercator owns two oil & gas blocks in Gujarat's Cambay basin.

If the talks materialise, this would be the third investment by AION in India. Last year, AION Capital Partners made an investment of Rs 300 crore in Jyoti Structures, a Mumbai-based company engaged in power transmission and procurement & construction projects. The fund, focusing on debt-ridden companies, invested about Rs 900 crore in Avantha Group in December last year. So far, AION has raised $500 million and expected to close the fund with a corpus of $800 million in a couple of months.

Mails sent to the Mercator management did not elicit a response. Vishakha Mulye, managing director, ICICI Venture, refused to comment on the matter.

"One cannot say the shipping industry is out of the woods but there seems to be some signs of recovery in this sector, for instance in the offshore segment. Due to this, PE firms believe there is a chance for debt plus equity investment," said an industry expert.

Mercator, the shares of which are traded at Rs 29 each on the BSE exchange, has a market capitalisation of Rs 710 crore. It has a little over $1 bn of assets under management and has been listed on the BSE and the National Stock Exchange since 1994, with a subsidiary listed on the Singapore stock exchange main board. It owns six tankers and forayed into the dredging business in 2007. Its dry bulk fleet (handled through Mercator Lines (Singapore) Ltd), imports coal from Indonesia to India for large thermal power plants and exports iron ore from India to China for steel conglomerates. It owns 14 bulkers with a DWT of 1,061,558.