Mercator Lines Ltd, India’s second-largest private shipping firm by fleet size, is close to buying three Panamax class carriers and one Kamsarmax class carrier for about $230 million (Rs943 crore) through its Singapore subsidiary in the run-up to the listing of Mercator Lines (Singapore) Pte. Ltd on the Singapore stock exchange in the next four to six months.
All four dry bulk-cargo carriers, being purchased from a Norwegian company, are gearless ships and hence would require assistance from shore to load and unload cargo. Panamax class carriers, called so because they can sail through the Panama Canal, typically carry 73,000-75,000 tonnes of dry bulk commodities such as coal, steel or iron ore, while Kamsarmax class carriers have a capacity of 82,500 tonnes. The four ships—to be registered in Singapore—will join Mercator’s fleet in June-July this year.
The freight rates for all dry bulk cargo carriers have jumped 60-70% in the last six months following rising Chinese demand for iron ore and congestion at Australian ports. The current average daily hire rate for a Panamax carrier for one-year charter is about $42,000.
Panamax carriers are the most popular size of dry bulk carriers as they are smaller than Capesize vessels (cargo carrying capacity between 1.3 lakh and 1.7 lakh tonnes) but bigger than Handymax carriers that can haul 50,000 tonnes.
Mercator’s wholly-owned Singapore unit currently owns one geared 73,000-tonne Panamax carrier and one geared Kamsarmax carrier. One more geared Kamsarmax carrier will join the fleet in June this year.
The Singapore subsidiary also has nine chartered ships on its fleet consisting of four Panamax carriers, one very large crude carrier, one Aframax carrier and three chemical tankers.
“The idea is to increase the tonnage of our Singapore subsidiary by 0.5 million tonnes,” Mercator’s chairman and managing director H.K. Mittal told Mint during a recent interview.
The new acquisition will take Mercator’s Singapore fleet to seven owned ships which Mittal says is a “substantially good” size.
Mercator Singapore plans to raise $150 million through a stake sale in the city state to help fund a $500 million fleet expansion plan. Out of this, the firm has recently raised $51 million through a convertible bond issue that was subscribed by top financial institutions such as Lehman Brothers and Morgan Stanley. The bonds will have to be converted into equity during the company’s proposed initial public offering (IPO).
Mercator will raise $100 million through the IPO and the balance $250 million for the expansion plan would be borrowed from banks and financial institutions, Mittal said.
Mercator opened the subsidiary in Singapore after India’s maritime regulator, the director general of shipping, refused permission to the firm in 2005 to in-charter nine geared Panamax carriers of about 73,000 tonnes from Norwegian shipping firm Klaveness AS. “The denial of permission turned out to be a blessing for me. We opened a subsidiary in Singapore to charter the vessels where the conditions are far more favourable for the growth of a shipping company,” Mittal said.
The Indian government had introduced a new tonnage tax (based on the cargo-carrying capacity of ships) in 2004 in place of corporate tax to boost Indian shipping tonnage.
But a host of other taxes, including service tax, fringe benefit tax, dividend distribution tax, minimum alternate tax on profit/loss on sale of ships, seafarer’s tax and withholding tax on interest paid to foreign lenders are forcing local ship owners to look at tax-friendly nations such as Singapore to register their ships. “India’s loss is Singapore’s gain,” Mittal noted.
Since the Klaveness deal, Mercator has returned three Panamax carriers to the Oslo-based firm while one ship sank. Out of the remaining five Panamax carriers, Mercator has exercised the option to buy one ship.
It will exercise the option to buy one more ship in June 2008 while the other three will be returned to the Norwegian owner when the charter period ends in 2011.