Nomura has upgraded Container Corporation of India (CCRI IN) to buy with a target price of Rs. 918. The Ministry of Railways in a fresh master circular has provided further clarity on some key investor questions and guidelines for leasing, licensing of railway land. This was a positive development for strategic stake sale of 30.8% on CCRI by the government.
As per the circular, a transparent online bidding process will be followed for allocating land for new cargo-related projects at 1.5% of the market value annually, at the time of execution of lease agreement with annual escalation of 6% for a period of up to 35 years. IR has clarified that the market value shall be the existing circle rate at the time of execution of the lease agreement.
If the use of the terminal is for industrial purpose (as with the case of CCRI), then the industrial circle rates are to be applied to determine market value. This clears ambiguity on the definition of market value of land. It also provided clarity on possible concession extension: On the expiry of the lease, further renewal for 35 years or for a stipulated period can be done based on a mutual agreement between IR and the lessee. Market value at the time of renewal to be considered for determining LLF charges.
Existing terminal leaseholders can opt to continue under the existing policy. In case existing leaseholder chooses to remain in the old regime, the LLF will be computed at 6% of market value of land (based on circle rate) with 7% annual escalation. The tenure of such lease is also confirmed as 35 years as there were initial doubts among investors if the tenure will be for five years or for 35 years.
Thus, there is some certainty about the long duration of residual lease for CCRI. Existing leaseholders can shift to the new regime on transparent competitive bidding with the existing leaseholders having the right of first refusal.
New regime’s annual escalation factor has now been defined at 6% pa. The earlier policy announcement was silent on the escalation factor. This is slightly favorable compared to the 7% escalation factor for existing assets. These clarifications are a step towards providing policy certainty which is a positive step towards strategic stake sale and factor in synergies in the valuation.
