Shipping Corp sees ship supply glut ending by next year end

Shipping Corporation of India (SCI), whose follow-on public offer is open in the market, plans to fund its shipbuying plans through debt, as well as overseas markets. The company’s current ship acquisition order worth $1.5 billion is expected to add 2 million dead weight tonnage capacity to its fleet. S Hajara, chairman and managing director, SCI, says that’s just a part of its overall acquisition plans. He spoke with <i>DNA</i> on the rate outlook and the FPO. Excerpts from the interview:

How much does the company plan to invest for freight realisation over the next few years?
SCI’s financial outlay for every year over the next three years should be close to $1 billion. Of that, 80% will come from debt and the balance will come from equity. This is the overall perception as far as ship acquisition is concerned. Our total outlay for the 11th Plan was supposed to be about Rs13,000 crore, which got slightly revised downwards to about Rs11,800 crore. As on today, we have 30 vessels on order of more than 2 million dead weight tonnage for around $1.5 billion.

How do you plan to fund your ship acquisition and other expansion?
We will fund it by internal resources and also by debt, which is mostly international in our case. Around 90% of our present debt is international. We follow 80:20 debt equity ratio for all the projects.

By when will the vessels currently on order be delivered to you and payment be made by the SCI?
The latest will be 2013. The final payment will also be done at that time. Every vessel is delivered only after the full payment is made. Also, the $1.5 billion is the order that we have now. Obviously, we will be placing more orders.

How do you see the debt exposure impacting the returns?
See, debt has to be serviced. That does not necessarily affect the return. It can substantially increase the return or decrease the return. It all depends on the freight market scenario and interest cost.

The response to your FPO is not so good. How do you see it?
I am told by the lead managers that 35% in the first day is not bad. I am not a player in the stock market and to be honest, I have not followed other FPOs or IPOs for that matter.

We have three book-running lead managers and I am in touch with them as well as with the divestment department. So according to them, 35% of the total book in the first day is not bad. However, I am not giving any opinion as I do not have any competence to give opinion in this sector.

The company also had plans to foray into port logistics sector. Any development on that front?
There is a vision of becoming a full-fledged maritime player and a logistics service provider. We are on a look out for specific business opportunities to forward that vision. But nothing has taken shape.

Have you initiated talks with any port operator?
We are always in talks with plenty of people. We are on a lookout for various opportunities. We had initiated expression of interest (EoI) from shipyards, and four Indian shipyards have submitted their EoIs.

We have to further carry out due diligence of the individual shipyards, evaluate their worth. It is a long-drawn process. There is nothing on cards for the immediate future.
 

What is your outlook on the rate front?
We believe the liner segment will continue due to slow steaming and other discipline. So we think the liner rates will exhibit positive buoyancy. But when it comes to tankers and bulk carriers, as we look at it today, the supply growth is higher than the demand growth. The demand is growing.

After the 2009 decline, the demand has shown healthy growth. But because of the unprecedented boom in 2004-08, when too many orders were placed, the supply continues to be growing at a higher rate than demand. And this will continue at least till 2011 end. Thereafter, the supply growth will drastically fall because between 2008 and 2010, very few ships have been ordered by any ship owner anywhere in the world. That will definitely bring down the rate of growth in supply 2012 onwards.

How do you see the container front?
Globally, it is growing at 6-7%. During the recession period, when the world was growing at 9%, India logged a 14% growth. We believe it will continue to grow more than globally.
The government has framed a vision 2020 plan for the maritime sector. Where does SCI fit into that plan?
I do not think the ministry of shipping has yet published that perspective plan, or the maritime agenda 2020. So I will not be able to comment on that.