Allcargo (AGLL) has, in fiscal year 20, entered into an agreement with Blackstone real estate Asia urban (BRE) to transfer 90% of its portfolio of 5 mn sq.ft. (agreement concluded with 6 subsidiaries to date) on a completed and leased basis, as well as additional greenfield development projects. The investment made by BRE to date is Rs 3.37 billion (identical to FY20, with ~ Rs 89.3 million of equity). In fiscal year 21, AGLL received Rs 605mn from Madanhatti Logistics and Industrial Park (MLIP), Venktpura Logistics & Industrial Parks (VLIP) and Allcargo Logistics and Industrial Park (ALIP) for the release of its previous holdings. The construction cost financed by AGLL continues to be reimbursed through refinancing through rent discount facilities which are well served by rent receipts. AGLL still owns a majority stake in Malur Logistics and Industrial Parks (MLP) and VLIP.
Management believes that despite the delays induced by Covid, it will be able to close the deal with BRE within the agreed (revised) timeline. We downgrade AGLL to HOLD from ADD after ~ 80% startup in the last 6 months.
Details of the transaction with BRE. AGLL has entered into agreements with its six wholly owned subsidiaries – MLP, ALIP, MLIP, VLIP, Kalina Warehousing (KW) and Panvel Warehousing (PW) with BRE. Business transfer agreements have been made with ALIP, MLIP, MLP and VLIP transferring ~ Rs 4.08 billion of AGLL warehousing assets through a discount sale. The total consideration of the business transfer converted into debentures for these four entities is 4.14 billion rupees (same as FY20).
Storage update. AGLL has already completed its first phase of warehouse development across the country and currently has over 4 million square feet of operational warehouse space with further lease commitments bringing the total space developed / in development course at 5.7 million. ft2 AGLL has other projects in the planning phase with a development potential of more than 3 mn ft2.
The put option of BRE is now valued at Rs 36.4 mn against Rs 30.2 mn year-on-year. If certain conditions are not met within a defined time frame (initially ~ 12 months ending January 13, 2021; FY21 Annual Report indicates it has been extended but does not specify a timeline), AGLL will need to redeem the debentures and equity. own that BRE has invested with 16% interest. AGLL evaluated the valuation of the put option of BRE with an independent appraiser and assigned it the appropriate probability according to its best estimate and arrived at a value of Rs 36.4 mn, up ~ Rs 6 mn year-on-year.
Actions of 8 pledged subsidiaries in favor of BRE probably against the obligations that BRE has extended in accordance with the annual report FY20; no other details shared in the FY21 annual report. The FY20 annual report highlighted that the actions of the private fleet Allcargo Inland, Allcargo multimodal, KW, PW, MLIP, ALIP, MLP and VLIP have all been pledged in favor of BRE. Thus, in addition to the 6 wholly-owned subsidiaries with which an agreement was signed, two additional subsidiary shares were pledged: Allcargo Inland Private Park and Allcargo multimodal.