Bangalore: When the Gem of Madras, a dry bulk cargo ship owned by Chennai-based West Asia Maritime Ltd, sailed into the Mississippi river in the US on 26 June, little did it realize it would become the first Indian casualty of the global shipping downturn that took hold in September.
Italian shipowner Augustea Atlantica SRL detained the Gem of Madras to recover unpaid rental hire for another ship, said at least three persons familiar with the development. Augustea alleged that West Asia Maritime defaulted on making two 15-day advance payments on a dry bulk cargo ship that was rented out at a rate of $40,000 (Rs19.48 lakhs) a day, said the persons, who didn’t want to be named.
Apart from operating their own ships, owners also hire vessels from others to fulfil contractual obligations. This is a normal part of the shipping business. Since September last year, ship rentals have collapsed in the wake of the global financial turmoil, lack of trade credit and waning demand for cargo. The London-based Baltic Dry Index (BDI), a measure of costs for shipping dry bulk commodities such as coal, iron ore, steel and grains, had plunged 92% to 663 points in December from a record high of 11,793 points on 20 May. In the past few months, BDI has started showing signs of a slight recovery, but is nowhere close to earlier highs.
The downturn has left a trail of defaults globally on payment of ship rentals, repayment on ship loans, and new ship order cancellations. But Indian ship owners have largely been spared.
“The earning capacity of the vessel hired by West Asia from Augustea is currently in the range of $20,000-22,000 a day,” said a Mumbai-based ship broker, who did not want to be named. As a result, West Asia Maritime told Augustea that the “current cash flow does not permit payments on ship hire”. Augustea then filed a $20.3million suit against West Asia Maritime and requested attachment of Gem of Madras ahead of arbitration over unpaid rental on the other ship.
To make matters worse, Swedish financial group Nordea Bank AB dived into the case with a lawsuit against West Asia Maritime over an alleged default of a loan on the Gem of Madras. The bank’s lawsuit alleged that the Chennai-based firm had failed to make payments on a $45million loan taken to buy Gem of Madras, out of which some $31.5million was outstanding including interests and costs.
Stockholm-based Nordea’s lawsuit sought proceeds from the potential judicial sale of the ship. In the shipping business, when a vessel detained is not released, it is sold under judicial custody and the proceeds are given to the entity that has sought attachment. Entities who have not “arrested” the vessel will not get any part of the sale proceeds. That explains why Nordea entered the case.
For over two weeks, the Gem of Madras was held in the US. Late last week, the attachment order was lifted and the ship was released after a settlement was reached via arbitration in London. Mint was unable to get details of the settlement. Augustea and Nordea could not be reached for comments.
“There were some minor irritants which was settled and the ship was released last week,” said R. Srinivasan, executive director at West Asia Maritime, the shipowning and operating firm promoted by Dubai-based business group Emirates Trading Agency Llc.
Srinivasan declined to give details of the settlement involving the Gem of Madras, but said the ship was owned by its Singapore unit West Asia Maritime Overseas Pte Ltd.