Shipping Corp plans to buy 6 second-hand vessels as prices drop

Shipping Corp plans to buy 6 second-hand vessels as prices drop

Bangalore: For the first time since it started operations in 1961, Shipping Corp. of India Ltd (SCI) will buy six second-hand ships as the state-run company looks to expand its fleet by taking advantage of prevailing low prices globally.

In today’s market, these six ships would cost between $150 million (around Rs700 crore) and $170 million, depending upon the age of the vessel—from five years to one year.

India’s biggest ocean carrier by fleet size and revenue has invited bids from sellers by 20 November to buy two medium-sized bulk carriers, two oil tankers and two ships to support offshore oil exploration. It would buy ships that are less than five years old or new vessels that owners are looking to sell due to lack of funding.

Unlike its rivals, SCI has till now avoided buying second-hand ships. Last year, the Union government, which owns around 80% of the company, granted it a so-called Navratna status, which enables the carrier to incur capital expenditure without seeking government approval.

“Today, the prices of second-hand ships are at its lowest," said U.C. Grover, SCI’s director for technical and offshore services. “This is an opportunity to buy ships at reasonable prices."

“If all goes well, these six ships will join our fleet in the next two-three months," Grover said. In comparison, a new ship ordered today will take at least 18-24 months for construction.

Last year, the company cancelled plans to buy two new oil supertankers and two big dry bulk ships as a liquidity crunch cut demand for trade.

“About half of India’s shipping fleet by capacity is more than 20 years old. In another five years, these old ships will have to be replaced," said Y.D. Khatau, vice-chairman and managing director at Varun Shipping Co. Ltd.

SCI will sell seven single-bottom tankers by 31 March to comply with a global regulation to phase out such ships by December next year.

To maintain India’s shipping fleet at its existing capacity, local shipowners have to invest some Rs38,000 crore to buy newer ships, Khatau said. “The timing is just right for acquiring ships because you can buy ships today at 10-year average low prices."

“Today, you can buy three ships at the cost of one (at prices) prevailing a year earlier," said Tobias Konig, managing partner of Hamburg-based shipping investment firm Konig and Cie GmbH KG. “You will not be able to buy ships cheaper than this," he told Mint during a visit to India in October.

“SCI wants to take advantage of this situation," Grover said.

The global economic slowdown has hurt SCI’s profits. In the first half of the year to March, the company reported a net profit of Rs153.62 crore, down from Rs554.48 crore a year earlier. SCI’s first-half profit from shipping operations was just Rs53.16 crore compared with Rs472.79 crore in the year-ago period. In 2008-09, it had posted a net profit of Rs940.67 crore.