Mumbai: India’s biggest carrier of liquefied petroleum gas, Varun Shipping Co. Ltd, will slash spending on new vessels this fiscal by at least 65% after the global financial crisis shut off access to credit.
“Varun plans to spend between $80 million and $100 million (Rs391 crore and Rs489 crore) on new vessels in the year ending in March, managing director Yudhishthir Khatau,” said in an interview in New Delhi on 31 August. Varun spent $230 million last year and $300 million the year before to expand its fleet, he said.
The gas carrier joins bigger rival Shipping Corp. of India Ltd in cutting spending due to the global financial crisis. Shipowners probably cancelled orders for 260 vessels carrying commodities and containers amid the worldwide recession, Lloyds Register, which certifies ships, said in April.
“It’s better to buy new ships when action picks up in the market,” said Rachana Kothari, an analyst at LKP Shares and Securities Ltd in Mumbai. “If the firm buys another ship, and then can’t deploy, it would be difficult to service debt.”
Shipping Corp., country’s largest sea carrier, said in March it will postpone new orders for vessels worth around $1 billion to the following fiscal.
“Besides tighter credit, the higher interest rates charged by local banks are also dissuading Varun from purchasing new ships,” Khatau said.
“We can’t afford to pay higher interest,” Khatau said. “In this economic environment, it will be unviable for us to buy ships at these higher rates.”
The rate at which banks lend to each other for three months in Mumbai is 4.58%, while the comparable rate in London is 0.35%, according to data compiled by Bloomberg.
Indian shipping companies have sought financial assistance from the government to cope with the credit crunch. “The shipping ministry has proposed assistance of Rs10,000 crore to the carriers,” A.P.V.N. Sarma, the top bureaucrat in the ministry, said on 17 March. He didn’t give a timeline for implementing the plan.