Mumbai: HSH Nordbank AG, the world’s largest ship financier, is looking to start operations in India, a market where local shipping firms will need to spend around $20 billion (Rs82,000 crore) on ships as they replace older vessels and acquire new tankers to meet international shipping guidelines.
Nordbank, 35.38% owned by the city state of Hamburg in Germany, has applied for permission from the Reserve Bank of India (RBI) to start operations, said a person familiar with the development, and who did not want to be identified ahead of a clearance from the Indian central bank.
If and when RBI clears its application, the German bank will become the first specialist ship financing firm to start operations in India. Nordbank has lent more than €30 billion (Rs1.7 trillion) to global shipping firms buying container ships, tankers and bulk carriers in an effort to meet the rising demand for moving cargo in a booming global economy.
According to the Indian National Shipowners Association (Insa), a body that represents local shipowners, Indian companies such as Great Eastern Shipping Co. Ltd, Mercator Lines Ltd, Varun Shipping Co. Ltd and the state-run Shipping Corp. of India Ltd need to invest close to $20 billion over the next five years to replace older, ageing ships and to comply with the stipulation of the International Maritime Organization (IMO), the global maritime regulator, to replace single-hull tankers with double-hull ones by 2010. Double-hull tankers have been mandated by IMO in an attempt to make carriage of liquids such as oil safer; in the event of an accident, a double hull will prevent spillage and the consequent expensive and hazardous clean-ups.
Currently, Indian ships with a combined cargo carrying capacity of 8.5 million tonnes (mt) carry 13-14% of the 450mt a year of cargo headed into or out of the country. In the next four to five years, this cargo is expected to rise to one billion tonnes a year.
“Indian shipowners will have to acquire ships with an additional cargo carrying capacity of 15mt over the next four to five years to maintain the share of 13-14%,” said S.S. Kulkarni, secretary general of Mumbai-based Insa.
Indian shipping companies have thus far resorted to a mix of both rupee funding as well as dollar loans (depending upon whether they earn in rupees or in dollars) to meet their financing requirements. Local lenders such as ICICI Bank Ltd, State Bank of India Ltd (SBI) and Axis Bank (formerly UTI Bank) are active in financing ship purchases. SBI has an exposure of over Rs5,000 crore to the shipping sector, said S. Mitra, a general manager with the state-owned bank. “There is a huge opportunity for banks in this segment of business,” he added.
Indian shipowners have already set aside over Rs2,000 crore in a reserve account to be used for buying ships. As per the newly introduced Tonnage Tax Act, shipowners have to set aside 20% of their book profits in a year in a separate reserve account for the sole purpose of buying ships.
The Union government had introduced the tonnage tax system for the Indian shipping industry from April 2004, adopting a norm prevalent in other parts of the world. Tonnage tax is a levy based on the cargo carrying capacity of a ship, instead of the traditional corporate tax system.
Companies accounting for over 90% of the cargo shipped globally every year operate on a tonnage tax basis. In tonnage tax, the incidence of tax is 1-2%, compared with the prevailing 30.9-33.9% corporate tax rate (for Indian companies).
Apart from shipping, Nordbank also undertakes financing of companies in sectors such as aviation, logistics, rail, infrastructure and real estate.
In the rail sector, Nordbank lends money to built freight cars, locomotives and electric multiple units used in suburban operations, passenger coaches, signalling equipment and infrastructure.