Bangalore: ABG group, which controls India’s biggest privately owned shipbuilder ABG Shipyard Ltd, has ventured into ship ownership after having lost a takeover battle early last year for Great Offshore Ltd to smaller rival Bharati Shipyard Ltd.
The group has set up at least four special purpose companies—three in Singapore and one in Norway—in the past 12 months to own and operate ships. “We plan to invest as much as $300 million (Rs 13.5 crore) to buy fleet,” said Dhananjay Datar, chief financial officer of ABG Shipyard.
Unlike Bharati Shipyard that holds a 49.73% controlling stake in Great Offshore, which specializes in providing support vessels to the offshore oil industry, ABG’s forward integration spans all segments such as offshore support ships, oil drilling rigs, crude tankers and bulk carriers.
ABG has started taking orders to build ships from its own ship operating companies.
“It makes a lot of sense in terms of synergy,” said Sunil Thapliyal, head of new ship-building at RS Platou (Asia) Pte. Ltd, the Singapore-based unit of a Norwegian ship-broking firm. “It is nothing new in the shipping sector. This model has been operational in countries such as Indonesia and Malaysia. In China, it’s happening very openly nowadays,” he said by phone from Singapore.
The biggest of the group’s special purpose companies is Varada Marine AS, registered in Norway. It has 18 vessels under construction at ABG Shipyard and meant for the offshore oil industry.
The group already operates 10 ships that have been rented out to clients such as ONGC Ltd, Chinese chemical conglomerate Sinochem group and Brazil’s state-run oil company Petrobras.
In October, the group set up Drilling and Offshore Pte Ltd in Singapore, which has placed orders with ABG Shipyard for two offshore oil drilling rigs worth a total $440 million.
The group’s ship-owning arm also has a 50% stake in Singapore-based Associated Bulk Carriers Pte Ltd, which has ordered three cement carriers at ABG Shipyard for Rs 385 crore. Thailand-based dry bulk cargo specialist Precious Shipping Public Co. Ltd holds the remaining stake in Associated Bulk Carriers. Precious Shipping is ABG’s single biggest customer with 15 dry bulk ships under construction.
A few months ago, ABG group purchased a second-hand oil super tanker, a so-called very large crude carrier, from Dubai’s Emarat Maritime Llc for about $36 million. The group made the purchase through PFS Shipping (Singapore) Pte Ltd, one of its four special purpose companies.
Fleet owners prefer registering their ships in Singapore and Norway given their conducive fiscal regimes. Fleet owners have to pay taxes in the countries where their ships are registered.
ABG group’s diversification into ship ownership comes at a time when fleet owners globally are hit by overcapacity and rising costs, including higher ship fuel prices. But the group hopes the tide will turn in the medium to long term. “We remain very bullish on the offshore and specialized shipping sector,” said Datar.
Ratings firm Icra Ltd expects shipping markets to remain subdued in the near to medium term, although the impact on different segments and asset classes may vary, it said in a 23 May report.
World trade growth is unlikely to fully absorb the incremental fleet capacity addition. Existing surplus vessel capacity and large scheduled deliveries in 2011 and 2012 will result in lower fleet utilization levels. Thus, any sustainable improvement will require strong growth in trade flows and reduction in capacity, both of which may happen over time, Icra, a unit of Moody’s Investors Services, said.
“Freight rates have registered a sharp decline from their peak and there has been only a feeble recovery since then. In certain segments, the freight rates are at their decade-low and they are unlikely to worsen further. Nonetheless, because of the order book overhang the rates may stay low over the medium term,” K. Ravichandran, senior vice-president and co-head, corporate sector ratings, Icra, wrote in the report. “Recovery in freight rates can falter if oil prices are to surge from their current levels.”
The improvement is expected to come sooner in the offshore oil exploration support vessel sector.
“We expect demand in the (offshore) sector to increase and gather strength along with activity level in the second half of 2011, as offshore projects (driven by exploration and production spending) initiated late last year and early this year will be kick-started,” DnB NOR Markets said in a 4 May quarterly sector preview, Asia Offshore. “Hence, the excess tonnage (capacity) situation in the market will improve in time to come,” said DnB NOR Markets, a unit of DnB NOR Bank ASA.
“Over a longer time horizon, we expect offshore support vessel rates and utilization to increase significantly in 2012,” it said.