The Hindu Business Line : Essar Shipping to sell 5 tankers for Rs 1,150 cr

IN a move that took the Indian shipping industry by surprise, Essar Shipping Ltd (ESL) has decided to sell its fleet of five Suezmax tankers to a Greek company for a deal worth Rs 1,150 crore.

Following the sale, Essar would be left with a tanker tonnage of one VLCC, one Suezmax and a few product carriers.

Apparently, ESL took advantage of the high prices prevailing in the second- hand ship market, apart from getting rid of its older tonnage. An official said the company would utilise part of the proceeds of the sale to go in for acquisition of new tonnage. Tankers contribute over 60 per cent of the company's total revenue.

But analysts were not convinced about the rationale behind the sale of assets at a time when the freight market is booming. "It would be virtually impossible for the company, in the near future, to acquire the same tonnage with the cash it received from this sale," said a shipping market analyst.

Currently, nearly 60 per cent of the company's revenues accrue from its tanker tonnage.

According to the company officials, ESL has entered into an agreement with the Greek company, Top Tankers Inc, for sale of the five tankers, which have an average age of 14 years. The gross value of the sale is $256 million, with the sale being subject to the buyers fulfilling certain capital market regulatory requirements.

As per the agreement, the tankers will be delivered to the buyer by April 2005. In the event of the buyer not being able to fulfil the formalities on or before November 25, it will have to pay substantial penalty to ESL, the official said.

What has particularly surprised the shipping circles is that ESL's approach to ship acquisition has been more logistic oriented. As a matter of fact, Mr Sanjay Mehta, CEO and Managing Director of the company, in an interview to Business Line last week, had pointed out that, "We look at acquisition not from the point of view of buying ships at the lower end of the asset value market and selling them to make profit. We will buy ships that we can operate for 25 to 30 years minimum. We do not do speculative buying of ships — our policy is to acquire assets behind business."

With shipyards worldwide being booked for new orders till 2007-08, the international shipping market is virtually devoid of new ships.

This has, during the last several months, heated up the second-hand market for ships. And with the freight market boom continuing, ship owners were willing to acquire tonnage even at higher prices as they are sure of the returns.

Clarksons Research has shown that valuation of tankers had gone up significantly in 2003, with an increase in prices by almost 34 per cent.

Cashing in on this trend, ESL firmed up the sale agreement with Top Tankers, with the prices it would be getting for the five ships being almost at the same level when it had purchased them about 14 years ago.

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