Blackstone to increase shareholding in Gateway Rail Freight

Blackstone has rejected an offer by the parent company to buyback these preference shares and chosen to convert them instead

Blackstone GatewayRailMumbai: Private equity firm Blackstone is set to increase its shareholding in Gateway Rail Freight Ltd, a unit of Gateway Distriparks Ltd, by converting its preference shares into equity.

Blackstone, which held compulsorily convertible preference shares (CCPS) in Gateway Rail Freight, has rejected an offer by the parent company to buyback these preference shares and chosen to convert them instead, the company told exchanges on Wednesday.

In August, Gateway Distriparks had offered to buyback Blackstone’s investment for twice the amount invested by the private equity firm in August 2010.

Gateway Distriparks “has offered to purchase the equity securities held by Blackstone GPV Capital Partners (Mauritius) V-H Limited (The Investor in GRFL) at Rs.600 crores which is twice the amount invested by them in August 2010,” the company said in a 24 August exchange notice.

The offer, however, has been rejected by Blackstone, the company said on Wednesday.

“…we opt to convert the CCPS held by us into equity shares…” the private equity firm said in a letter to the company, according to the exchange filing.

A person close to the development said Blackstone’s stake in the Gateway Rail Freight could go up to 47% post the transaction.

“The terms and conditions are not yet finalized. But as per the agreement, Gateway Distriparks will continue to hold 51% in GatewayRail Freight, while the stake of Blackstone can go up to 47%,” he said, requesting anonymity.

Blackstone’s decision to convert CCPS into equity reflects the private equity firm’s confidence in the rail business unit, the person added.

Earlier this year, Gateway Distriparks said it will sell shares of its subsidiary Gateway Rail via an initial public offering (IPO). Gateway Distriparks had said in response to a notice received from Blackstone GPV Capital Partners’ letter dated 16 January that the firm will initiate steps necessary for the IPO.

In November 2009, New York-based Blackstone Group Lp invested Rs.300 crore in Gateway Rail Freight. Blackstone said it will acquire between 37.3% and 49.9% of Gateway Rail in preferential shares based on certain performance parameters. Gateway Distriparks could buy back the shares at the end of five years from the date of investment or Blackstone could sell it back to Gateway Distriparks at the end of 10 years.

Gateway Rail handles all the rail operations of the parent group. It provides inter-modal logistics and operates its own rail-linked inland container depots at Garhi-Harsaru (Haryana), Ludhiana (Punjab) and Kalamboli (Navi Mumbai).

Gateway Rail owns and runs a fleet of 21 trains and 235 plus road trailers at its rail-linked terminals, its website says