Shipping Corp shakes off divestment blues ; to buy five ships for some Rs2,000 crore
MUMBAI : State-run Shipping Corporation of India Ltd (SCI) has initiated steps to buy five ships, all second hand of various types, with an investment of some Rs2,000 crores, in an indication that the ‘unofficial’ freeze on acquiring ships due to the on-going privatisation exercise has been lifted, multiple sources said.
The board of the national carrier has given “in-principle” approval to the ship purchases by 31 March, that includes a very large gas carrier (VLGC), a medium range tanker (MR Tanker), a container ship of over 9,000 twenty-foot equivalent units (TEUs) capacity, a platform supply vessel (PSV) and one anchor handling, towing and supply vessel (AHTSV), one of the sources, a government official, said.
Shipping Corporation of India last expanded fleet in FY2017 when it acquired four vessels – two platform supply vessels, one VLGC and one Suezmax tanker – all second hand.
In December 2020, the Department of Investment and Public Asset Management (DIPAM), the government’s asset sale department, started the process of privatising Shipping Corporation of India, a so-called ‘navratna’ public sector undertaking, by selling the government’s 63.75 percent stake to a strategic buyer. The sale process is yet to reach a conclusion.
SCI is India’s biggest shipping company by fleet size and is the country’s only shipping company that owns very large crude carriers or so-called oil super tankers. It has five VLCC’s on its fleet.
The carrier has not purchased a ship for more than six years while its fleet strength is getting “depleted” as older ships are sent to the scrap yards. In comparison, its private rivals have expanded their fleet through second hand purchases at regular intervals.
SCI currently runs a fleet of 59 ships of various types of which one product tanker will be heading for the scrap yard in February.
“This issue was discussed in a recent board meeting wherein it was decided to initiate steps to buy ships,” the government official said.
“We are in the market to acquire second hand ships,” said a senior Company official.
“Disinvestment happening or not happening, we are going to be aggressive in ship acquisition. Our idea is to multiply the fleet in the next 2-3 years. Our main revenue earning assets are vessels and if that is getting depleted because of age, we have to take corrective measures,” the official said.
“My bottom line is if I don’t earn on the fleet, I have no future,” the official said.
The Ministry of Ports, Shipping, and Waterways, which administers the Company, has also made it clear that the carrier’s “business plans should not suffer” due to the disinvestment process, the government official mentioned earlier said. Private fleet owners can acquire ships quickly while SCI being a state-owned company has to “follow the process”.
Shipping industry sources, however, are sceptical on how far the plan will move ahead in view of the high asset prices prevailing in the market.
But the positive side is that the freight rates, particularly for container shipping and to some extent tankers, have risen in the wake of attacks on commercial ships transiting the Red Sea by Iran-backed Houthi militants since December. The attacks have led container ship owners to divert their ships covering the westbound trades via the Cape of Good Hope, a longer route, to maintain the safety of crew, cargo, and ship. Most of the box lines
have imposed surcharges to recover the extra costs on bunker arising from the longer detour.
“Shipping Corporation of India has been making profits for the last three years but has an ageing fleet that has been aggravated by systemic under investment in assets for more than six years due to the sword of privatisation hanging over its head,” a shipping industry executive said. As a result, the carrier has not been able to tap the potential arising from the growth in India centric cargo, he noted.
In the early 1990’s, around 90-95 percent of India’s crude transportation was hauled by SCI because nobody else had the ships. Today, that has come down to 30-40 percent.
Even after having assured business, state-run oil companies are sitting right next to SCI’s office in Mumbai, importing crude oil left, right and centre but the carrier does not have enough tonnage to transport oil.
“There is assured business for the next 25-30 years; oil will remain a key part of India’s economy easily for the next 25-30 years. Despite this, the company has not been able to invest in oil tankers,” said the shipping industry executive, who declined to be named.
The extent of opportunity loss arising from lack of ships is best reflected in its container business where the carrier – India’s only mainline container ship operator – runs just two container ships.
“With just two container ships, SCI made an operating profit of Rs624 crores in its liner division during the pandemic period of 2021-22, contributing as much as 70 percent to the total profitability of SCI that year. If SCI had ten container ships, can you imagine what kind of money it would have made? During the pandemic period, the global liner industry together made profits of more than $200 billion. That is the kind of money which people
make,” the shipping industry executive added.
Along with the two container ships it owns, SCI also bought slots on ships owned by Mediterranean Shipping Company (SCI’s partner in the weekly European service) and sold the space to customers, helping it make Rs624 crores in operating profits in FY22.
The Company’s balance sheet received a huge blow after it was directed by DIPAM to transfer Rs1,000 crores to the non-core company as part of the privatisation exercise, making fund raising for fleet expansion a tad difficult yet manageable.
Besides, SCI is yet to utilise the Rs133.85 crore left from the funds raised through a follow-on public offer (FPO) in December 2010, the proceeds from which were mainly intended to buy ships.
Historically, the carrier has acquired new ships by placing orders at shipyards. Like in FY17, this would be one of the rare instances where it has tapped the second-hand ship market to quickly bolster its fleet.
The move, according to the industry executive, makes sense because a new ship would take at least 18-20 months to build from scratch. Further, given the lack of clarity on the type of green fuels needed to run ships as part of a global decarbonisation drive facing the shipping industry, ordering new ships that runs on fossil fuel for 20-25 years, would be a risky bet, he added.