Tough Times: Shipping companies and shipyards struggle for survival

During the past few years, Indian shipping companies and shipyards have been facing tough times. The slowdown in the global economy has led to fewer orders for commercial vessels, which has meant declining revenues and increasing losses for almost all the companies. There have also been a few instances of corporate debt restructuring (CDR) by these players. Meanwhile, to stay afloat, shipyards are diversifying into manufacturing of other vessels such as those for defence as well as offshore vessels. Though, the government has recently announced various measures to promote the domestic shipbuilding industry, it will take some time for the impact to be felt on the ground.

Indian Infrastructure analysed the past year’s performance of a few shipping companies and shipyards…

Shipping Corporation of India

• Established in 1961, the Shipping Corporation of India (SCI) is the largest shipping company in the country, with a share of over 30 per cent in total shipping tonnage. It is also one of the most diversified shipping companies, operating break bulk services, international container services, liquid and dry bulk services, offshore services and passenger services.
• During 2015-16, SCI earned around 78 per cent of its revenue from the bulk segment, 13 per cent from the liner segment and 9 per cent from the technical and offshore segments.
• As of May 1, 2016, the company had a fleet of 69 vessels with a gross registered tonnage (GRT) of 3.29 million and deadweight tonnage (DWT) of 5.89 million.
• In 2014-15, SCI earned net profits of
• Rs 2 billion after suffering losses for three consecutive years (2011-12 to 2013-14). In 2015-16, the positive trend continued with net profits at Rs 3.77 billion, a growth of 88 per cent.
• SCI has decided to procure a second-hand oil exploration support vessel for about $15 million. The vessel, Greatship Ragini, is a 2013-built remotely operated vessel, which was previously owned by Greatship Global Offshore Services Pte Limited, a wholly owned subsidiary of Great Eastern Shipping Company Limited (GE Shipping). The vessel is expected to become part of SCI’s fleet by December 2016.
• Going forward, SCI plans to expand and diversify its services to coastal and feeder services, logistics, developing container freight stations, terminal development and management, shipbuilding, dredging, etc.

The Great Eastern Shipping Company Limited

GE Shipping is the largest private sector shipping company in the country, accounting for around 13 per cent of total shipping tonnage. The company has two main businesses: shipping and offshore.

• During 2015-16, GE Shipping earned 55 per cent of its total revenue from the shipping business and 45 per cent from the offshore business. The company registered a growth of 39 per cent in net profits in 2015-16, increasing from Rs 7.48 billion in 2014-15 to Rs 10.39 billion in 2015-16.
• As of May 30, 2016, the company has a fleet of 32 vessels (23 tankers and nine dry bulk carriers) with an average age of 10.4 years, aggregating 2.4 million DWT.
• During 2015-16, the company took delivery of three vessels, adding 0.17 million DWT. Apart from this, in September 2015 the company took delivery of a newly built Kamsarmax dry bulk carrier, Jag Aakash, of 81,600 DWT, and subsequently delivered it to the buyers.
• So far, in the current fiscal year (2016-17), the company has taken delivery of a newly built medium range product tanker, Jag Punit (49700 tonnes DWT). Further, it has entered into a contract to buy a very large gas carrier of 76,931 cubic metre capacity for delivery in the April-June quarter of 2016-17. The company has also contracted the purchase of two new Kamsarmax dry bulk carriers of 82,000 tonnes DWT each, for delivery in the July-September quarter of 2016-17.

Essar Shipping Limited

• Essar Shipping Limited (ESL) is an integrated logistics solution provider with a presence in logistics services, sea transportation and oilfield drilling services.
• In 2015-16, ESL registered a net loss of Rs 4.53 billion as compared to Rs 4.58 billion in 2014-15. During 2015-16, the company earned 50 per cent of its earnings from logistics services, 44 per cent from fleet operations and 6 per cent from oilfield services.
• ESL currently has a fleet strength of 15 vessels, which comprises two double-hull, double-bottom, very large crude carriers, three Capesize vessels, six mini Capesize vessels, two modern Supramax vessels and two bulk carriers with an aggregate capacity of 1.84 million DWT. The company’s total DWT is expected to increase to 2.2 million after the addition of four Supramax vessels that are being built at ABG Shipyard Limited’s facility in Gujarat.
• Recently, in May 2016, the arbitration tribunal directed Steel Authority of India Limited (SAIL) to pay ESL about Rs 3.23 billion for illegally terminating a contract. In November 2007, SAIL had engaged ESL to transport 3 million tonnes of coking coal from Queensland, Australia, to India. However, SAIL terminated the contract in March 2011 invoking the force majeure clause, leading to huge losses for ESL. With the parties unable to settle the matter, ESL resorted to arbitration.

Mercator Limited

• Mercator Limited is one of the largest private sector shipping companies in India. The company has diversified into the offshore business through its subsidiaries, Mercator Oil and Gas Limited and Mercator Offshore Limited. Currently Mercator has 18 vessels – nine dredgers, four medium range tankers, two bulk carriers, a very large crude carrier, a very large gas carrier and a floating storage vessel.
• During financial year 2015-16, the company’s net losses increased to Rs 8.9 billion from Rs 4.49 billion in 2014-15. The company earned around 48 per cent of its revenue from coal mining, processing and logistics, 29 per cent from shipping, 14 per cent from offshore activities and the remaining 9 per cent from other activities.
• In June 2015, Mercator Limited acquired two European-built dredgers. The first is a trailer suction hopper dredger while the second is a bucket ladder dredger. This acquisition has enhanced the company’s capacity and capability in serving the coastal dredging segment in the country.
•  In April 2016, the company sold its Singapore bulk cargo business and disinvested its entire stake in Mercator Lines (Singapore) Limited through its wholly owned subsidiary, Mercator International Private Limited (MIPL).
• The company also sold Kalpana Prem, its 73,652 DWT bulk carrier, for $2.93 million. The proceeds from the sale are to be directed towards servicing MIPL’s debt.

Cochin Shipyard Limited

• Cochin Shipyard Limited (CSL) is a public sector undertaking under the administrative control of the Ministry of Shipping (MoS). The shipyard has the capacity to build ships up to 110,000 DWT and repair ships of up to 125,000 DWT. During 2015-16, CSL built as many as six ships.
• In April 2016, CSL signed an MoU with South Korean shipyard, Samsung Heavy Industries, (SHI) to bid for GAIL (India) Limited’s tender for building liquefied natural gas (LNG) vessels. According to the terms of the contract, CSL will supply the dock and the manpower, while SHI will give advice on shipbuilding technology and equipment procurement.
• Earlier, in January 2016, CSL signed an MoU with Wartsila India, the Indian arm of the Finland-based Wartsila Corporation, for ship engine repair services. According to the MoU, Wartsila plans to support CSL with comprehensive engine services, propulsion services, as well as electrical and automation services. Further to this agreement, CSL is expected to attract more ship repair business at its present facility.
• Moreover, the company launched ICGS Ayush, a fast patrol vessel (FPV), on January 29, 2016. This is the last of the 20 vessels being built for the Indian Coast Guard. CSL is expected to deliver the FPV by end-2016, prior to the scheduled delivery of March 2017. Meanwhile in June 2016, CSL delivered the 18th FPV ICGS Aryaman, to the Indian Coast Guard.
•  At present, CSL is building four catamaran vessels for the Andaman & Nicobar Islands administration, which are expected to be delivered by 2018. The total cost of these vessels is Rs 14 billion.
• In December 2015, the company successfully completed a Mark-III Flex Mock-Up, certified by Gaztransport et Technigaz (GTT), France. CSL is the first Indian shipyard to obtain this licence and can now build LNG ships for any client world-wide using GTT’s patented membrane containment system, the Mark-III technology.

Hindustan Shipyard Limited

• Since its inception in 1941, Hindustan Shipyard Limited (HSL) has delivered 173 vessels of various types and repaired over 1,920 vessels. During 2015-16, HSL manufactured three vessels.
•  HSL came directly under the control of the Ministry of Defence (MoD) in February 2010 to meet strategic requirements of the Indian Navy. The company has three slipways with a capacity of over 60,000 DWT, a covered building dock, a wet basin and a dry dock.
• In July 2015, the central government shortlisted HSL, one of nine shipyards, to build a 65,000 tonne aircraft carrier for the Indian Navy at an estimated cost of Rs 600 billion.
• In January 2015, HSL signed an MoU with South Korea’s Hyundai Heavy Industries for technical collaboration to build submarines. The two companies are planning to jointly construct self-propelled support ships for the Indian Navy.

Bharati Defence and Infrastructure Limited

• Bharati Defence and Infrastructure Limited (BDIL) (formerly known as Bharati Shipyard Limited), is an Indian private sector company engaged in the design and construction of offshore, coastal and inland vessels.
• During financial year 2015-16, the company reported total revenues of Rs 679.8 million and net losses of Rs 18.98 billion.
•  BDIL is implementing various long-term measures to improve its cash flow and is simultaneously exploring multiple options for funding its partly completed projects. During 2015-16, ECL Finance Limited provided financial assistance to BDIL to help complete some of the nearing-completion projects as well as for other operational needs.
•  In 2015-16, the company received a permit from the MoD to build warships for the Indian Navy.
• At present, the company is in the process of drafting a long-term restructuring package with the help of its lead lender, Edelweiss Asset Restructuring Company, which is to be submitted to the Board for Industrial and Financial Reconstruction.

ABG Shipyard Limited

• ABG Shipyard Limited was incorporated in 1985 as Magdalla Shipyard Private Limited. The yard has multiple building berths, two dry docks, and a computerised ship lift platform with a capacity of 4,500 tonnes.
• The company’s net losses increased from Rs 8.97 billion in 2014-15 to Rs 37.04 billion in 2015-16. In April 2016, ABG Shipyard Limited’s lending banks decided to issue a public notice inviting expression of interest bids from buyers to pick up a controlling stake in the shipyard. The banks are also actively pursuing the possibility of a change in ownership and management of the company.  Another option that the banks are exploring is to sell the assets of the shipyard to recover their money. Since March 2014, ABG Shipyard has been in a CDR programme, under which lenders agreed to recast loans of Rs 110 billion, offered the firm a two-year hold on interest payment, reduced borrowing cost and extended the repayment period.
•  In December 2015, the company delivered a pollution control vessel to the Indian Coast Guard, built at a cost of Rs 1.2 billion. This was the third and last of a series of vessels ordered.

Reliance Defence and Engineering Limited

• Reliance Infrastructure Limited (RInfra) acquired the management control of Pipavav Defence and Offshore Engineering Company Limited (PDOECL) in January 2016. The latter is now known as Reliance Defence and Engineering Limited (RDEL) and RInfra owns 36.5 per cent equity in it.
•  RDEL has an integrated shipbuilding, ship rig repair and conversion facility in Gujarat. The company has a modular shipbuilding facility with a capacity to build fully fabricated and outfitted blocks. The fabrication yard is spread over 2.1 million square feet. The shipyard also has a 980 metre long and 40 metre wide pre-erection berth, two goliath cranes with a combined lifting capacity of 1,200 tonnes, and an outfitting berth of length 780 metres.
• During 2015-16, the company’s net losses increased by 49 per cent to Rs 5,924.2 million from Rs 3,985.46 million in 2014-15.
• In March 2015, the CDR Cell approved a Rs 120 billion debt recast proposal for PDOECL that included Rs 45 billion of fresh funds. Later, in November 2015, RInfra stated its intent to exit the CDR package, as the exit was expected to lead to improved financial flexibility and increased business opportunities. Subsequently, in January 2016, RInfra’s board approved the exit.
• RInfra is entering into various agreements with foreign collaborators to build capability in defence equipment production. In December 2015, it entered into a strategic partnership agreement with Russia’s United Shipbuilding Corporation and JSC Rosoboron for the manufacturing and modernisation of surface vessels. This modernisation and refitting work for surface vessels for the Indian Navy is expected to be done at RDEL’s facility.
•  In March 2016, REDL delivered its seventh offshore supply vessel to the Oil and Natural Gas Corporation from a series of 12 indigenously designed and built ships, together valued at Rs 7,000 million.