What does JNPT intend to do with bond issue proceeds

Moneycontrol Bureau

The Jawaharlal Nehru Port Trust (JNPT) on Friday said that it will raise up to Rs 2000 crore by selling tax-free bonds between March 11-15. These bonds will be at a face value of Rs 1000 and will offer interest rate in the range of 6.82-7.32 percent.

The proceeds of the sale will be used to fund dredging activities of the Mumbai harbour channel which will allow large vessels to enter the port. 

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The dredging project is crucial for development of the port but is pending for around five years now. Currently, JNPT has three containers handling terminals under it - one run by itself and two by private parties. It is in the process of building a fourth container terminal.

N.N Kumar deputy chairman, JNPT told moneycontrol.com, "The first phase of the dredging will increase the draught to 14 meters from the current 12.5 meters and will be complete by September 2014." He further said that the total estimated cost of the dredging project is around Rs 1571 crore and the project will be completed in two years.

JNPT officials further said that the port was keen to raise funds via issuing bonds last year, but the ministry did not allow it to do so, saying it should fund expansion plan through internal accruals.

"This time, the government has allowed the port sector to issue tax-free bonds, hence we will come out with a bond issue," added Kumar.

Earlier this week, Ennore Port Ltd. also launched a public issue of tax-free bonds to raise up to Rs.1,000 crore from the market to meet its capital investment plans.

Why is fund raising critical for JNPT?

Retain number one position
Private ports like Mundra port have a natural depth of over 12.5 metres making way for bigger vessels, hence, it has become very critical for JNPT to widen its depth with the bond proceeds, so that it does not lose cargo business to other players, explains Subhash Kumar,  ex chairman, Chennai Port Trust. He further said that the port has a very good road and rail connectivity for further cargo movement. Hence, expansion will bring in more volumes.

Speedy expansion
After raising funds via tax free bonds, the port can further take up other expansion projects like the long pending development of  fourth container terminal through internal accruals. Though, officials preferred to keep quite about other expansion plans, industry watchers say, it may also look at acquiring land for allied activities too.