Monday, 10 October 2011

Is SCI really on the verge of financial collapse?

A report put out by news agency PTI presents an alarming picture about the future of the State run Shipping Corporation of India, quoting an internal Shipping Ministry document as saying that the shipping giant is "on the verge of financial collapse" because of its expansion plans. It also reveals that SCI's Directors wanted to stop all acquisitions at their last meeting.

"SCI, which has had a profitable run for the last 19 years, is on the brink of a financial collapse...the company will be in the red from this year onwards. The large and high cost orders are leading to a "debt-trap, almost on the lines of Air India," the document warns, before going on to underline the comparison with the beleaguered airline. It says that the shipping company may lose around USD 200 million because of the purchase of new ships. 

If these reports are true, the fact that that such thinking comes from within the Shipping Ministry will ring alarm bells across the industry and financial markets. SCI - that owns a third of Indian tonnage and has operating interests in practically all areas of the shipping business- had announced at its 61st AGM recently that it would spend Rs 3,700 crore in the ongoing fiscal to acquire 24 new vessels. Finance Director BK Mandal had said at the time, "Our capital expenditure for 2011-12 is Rs 3,700 crore and this will be used for acquiring 24 vessels."  It is those plans that may now become a question mark at the company that was conferred “Navratna” status three years ago, a status that gave SCI greater autonomy to decide on many issues like capital expenditure, formation of Joint Ventures and mergers. 

According to the document quoted, acquisition costs per vessel as contracted by SCI are lagging way behind present market value of the vessel's in question. "The overall loss to the company on account of such acquisitions, where there are gaps between the contract price and the present market value, is in excess of USD 200 million," the document said. SCI has 33 vessels on order, many at Chinese yards; it is believed to have tied up finance for just ten of these.  "It was in this context that the Board of Directors of SCI in its last meeting had desired a complete ban on all fresh acquisitions," the Ministry document stated.

SCI's Chairman and Managing Director S Hajara declined to comment on the observations made by the Shipping Ministry, PTI says.  On another note, media reports had said last month that Mr Hajara had hinted at the 61st AGM that the company was under financial pressure and was going slow with its plans to acquire a stake in private shipyards.  "When your bottom lines are under pressure... I cannot say when the plan will be implemented," he had said when a shareholder had asked about the status of the plan.

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